Week Two of the Oil Shock: The Psychology of Chronic Uncertainty Is Different From Acute Panic
THE BRIEF
- Acute panic (Week 1) is characterized by a single emotional spike: clients call, advisors reassure, markets stabilize or don’t. The behavioral intervention is straightforward
- Chronic uncertainty (Week 2+) produces a different set of cognitive distortions: grinding anxiety, availability bias amplified by constant news, and the growing compulsion to act simply to reduce the feeling of helplessness
- The “action bias” is the primary risk right now: investors who haven’t acted yet feel increasing pressure to do something after two weeks of unresolved uncertainty, even when inaction is the correct strategy
- Loss aversion compounds during extended volatility: clients who have absorbed week-over-week losses experience each new loss as disproportionately painful relative to an equivalent gain
- The advisor’s role in Week 2 is different: less about providing information, more about providing a framework that makes inaction feel like a choice rather than passivity
The behavioral finance literature on crisis events is rich but often focused on the initial shock — the single day of maximum fear, the panic call, the urge to sell everything and hide in cash. What is less studied, and more relevant to the current moment, is the psychology of the second week: what happens to investor decision-making when the crisis does not resolve, the headlines do not improve, and the sense of helplessness compounds daily.
We are now in that territory. The Strait of Hormuz has been effectively closed for two weeks. Markets have experienced three consecutive losing sessions followed by a partial bounce that has not resolved the underlying situation. Clients who held through Week 1 — who absorbed the initial panic and didn’t sell — are now facing a different psychological challenge. And the behavioral risks in Week 2 are, in some ways, harder to manage than the acute panic of Week 1.
The Shift from Panic to Compulsion
Behavioural finance research consistently identifies “action bias” — the tendency to favour action over inaction even when inaction is objectively superior — as one of the most consequential investor errors during extended uncertainty. The mechanism is intuitive: when a threat persists without resolution, the human nervous system registers ongoing inaction as inadequacy. Doing something — anything — feels like taking control. Selling a position, moving to cash, switching to a different fund, even just reshuffling holdings within a portfolio without a clear rationale — these actions produce a momentary sense of agency that temporarily reduces the anxiety of helplessness.
The problem is that acting to reduce anxiety is not the same as acting to improve outcomes. During a sustained oil shock, selling equities locks in the losses of a shock that history suggests will eventually resolve. Moving to cash abandons participation in a recovery that may begin without warning. Switching between funds generates transaction costs and potential tax events in non-registered accounts. The action feels better. The outcome is usually worse.
Availability Bias and the News Cycle
Availability bias — the tendency to overweight information that is most easily recalled — is being systematically amplified by the current news environment. Clients who read three consecutive articles about “$200 oil” and “global recession risk” will assign those scenarios a much higher probability than the base-rate evidence supports. The IEA’s own emergency reserve release was described in headlines as “unprecedented.” The IRGC’s warning that no oil will pass the strait was reported as a factual statement of intent rather than a negotiating posture. Every alarming headline is another data point that becomes disproportionately available to the client’s mental model of the situation.
The advisor’s role in Week 2 is partly editorial: helping clients distinguish between the signal in the data and the noise in the news cycle. Geopolitical oil shocks have a consistent historical pattern. The 1973 Arab oil embargo lasted five months before resolution. The 1979 crisis lasted roughly a year. The 1991 Gulf War produced an oil spike that reversed within four months of the conflict’s conclusion. The current crisis is genuinely severe — the IEA’s characterisation as the largest supply disruption in market history is accurate — but severity and permanence are not the same thing.
What Changes in Week 2
There is a meaningful segment of clients who did not call in Week 1 — the stoic, the disengaged, or the clients who quietly resolved to “wait and see.” For many of these clients, Week 2 is when the accumulated anxiety crosses a threshold. Two consecutive weeks of negative headlines, combined with a portfolio that has not recovered, produces a different kind of urgency than the initial shock. These are often the clients who call not to ask questions but to announce decisions — “I’ve decided to move everything to GICs” — decisions made privately over the preceding days without professional input.
Proactive outreach in Week 2 of a crisis, particularly to the clients who haven’t called, is among the highest-value advisor activities in an extended market disruption. The goal is not to talk them out of anything specific. It is to reinsert the advisor into the decision-making process before the private decision becomes irreversible. Reaching out and simply saying “I wanted to check in — I know it’s been a difficult two weeks and I’m available if you want to talk through anything” is enough to shift the dynamic from private rumination to collaborative deliberation.
Sources
Advances in Consumer Research (behavioral finance literature), European Business Magazine, Wealth Morning, Business Standard, Morningstar India, Federated Hermes, Kahneman & Thaler (behavioral finance research)