I recently read a very interesting market analysis and found that investors may really have underestimated the power of geopolitical shocks.

Last spring, at meetings of the IMF and the World Bank, an unconventional view emerged: global markets were too optimistic. Officials from various countries, central bank representatives, and economists gradually reached a consensus—that even if conflicts end quickly, the damage to the global economy would not disappear immediately, and might instead worsen before improving. The logic behind this is actually solid: disruptions to energy supply, longer trade routes, and rising geopolitical uncertainty would all weigh on global growth.

One detail at the time was a telling illustration. The Qatari finance minister said plainly, “What we see is just the tip of the iceberg,” while the U.S. stock market was moving toward record highs and oil prices were below $100. This kind of disconnect in itself reflects confusion in market pricing. As a major liquefied natural gas exporter, Qatar expected that energy shortages would spread in the coming months, potentially leaving some countries “unable to light up.” More importantly, nearly one-third of the world’s helium comes from this region, and semiconductor manufacturing cannot do without it.

Interestingly, the Trump administration at the time tried to portray all of this as a temporary shock. The Treasury Secretary claimed the war would eventually end, “in either three days, three weeks, or three months,” and then energy costs would quickly fall. But at the IMF and World Bank meetings just a few blocks from the White House, this brand of optimism simply did not hold up.

The IMF’s chief economist then lowered growth expectations, forecasting that the world would experience the slowest growth since the pandemic. Even more importantly, he pointed out that “every day that energy supplies are interrupted, we move one step closer to a worse scenario.” European Central Bank President Christine Lagarde issued a similar warning. The World Bank president put it even more directly: “Don’t think of this as just another month of pain—see it as a test that will last longer.” Even if fighting stops and energy facilities are no longer being damaged, the supply system still needs time to stabilize.

That is why the head of the International Energy Agency said, “March will be a very difficult month for the world, and April is likely to be worse than March.” At that time, the final batch of cargo departing from the Persian Gulf had only just arrived at its destination, and the full impact of the largest energy shock in history had not yet fully manifested.

What is most puzzling is that, despite such pessimistic expectations, the U.S. stock market—especially the S&P 500—still hit record highs. Some analysts believed the market had underestimated how serious the situation was because it did not fully recognize the disruptions to supply chains. Others mentioned the so-called “TACO” pattern—investors fearing they might miss an opportunity if Trump were to suddenly change his position. Combined with signals that the situation in the Middle East might ease, optimism about artificial intelligence, and expectations for corporate earnings, these factors caused market participants to abandon caution.

The IMF’s managing director noted that another reason the market was optimistic was that the U.S. economy was relatively healthy, and as an oil-exporting country it was less affected by energy shocks. But she also admitted candidly that “that’s not the case elsewhere; other regions are already enduring tremendous pain.” When asked whether markets should be more cautious, her answer was straightforward: “Yes, they should be more cautious, because disruptions to supply chains are already quite significant.”

PwC’s analysis said the market was underestimating the severity of this conflict. And researchers from JPMorgan Chase and Bridgewater Associates raised a deeper issue: the impact of this energy shock might be a “rolling contagion” like COVID-19. Asia felt the energy supply disruptions first, and now Europe is beginning to experience them—while the U.S. will be next.

Washington was also thinking about an even bigger question: after experiencing tariff shocks, the pandemic, and the Russia-Ukraine conflict, how much resilience can the global economy still maintain? Debt levels have risen, and many governments’ capacity to respond to crises is weakening. The head of sovereign advisory at an investment bank said bluntly, “No one knows how far we are from the breaking point, but economic, financial, and social resilience are not infinite.”

Of note, concern within the IMF about the severity of the crisis has been spreading. The biggest worry is that the chain reaction triggered by energy shocks could spill over into global financial markets. Nigeria’s representative to the G24 called on the IMF and the World Bank to mobilize more resources, because as this crisis hits developing countries, wealthy nations are cutting back on foreign aid, and in many poor countries, debt service costs have already exceeded the aid they receive.

Senior researcher Christina Buksas and others have emphasized that the key point the market is overlooking is this: the way the current energy shock spreads and the depth of its impact may be similar to COVID-19. This is not a short-term shock, but a systemic adjustment that takes time to digest. From this perspective, the global market’s optimism is indeed worth revisiting.