The Oil Shock Playbook: Why the Worst Investor Decisions Get Made on Days Like Today

The Strait of Hormuz crisis is now approaching its eighth week. Iran has again tightened control over the waterway after the U.S. Navy seized an Iranian cargo vessel over the weekend, and ceasefire negotiations remain fractured heading into Monday morning. Brent crude opened above $95/barrel, equity futures sold off before the open, and Statistics Canada published March CPI data this morning showing headline inflation at 2.4%, driven by a record 21.2% monthly jump in gasoline prices. The conditions are in place for one of the most reliably destructive patterns in investor behavior: emotionally driven portfolio decisions made at the exact moment when information is most uncertain and the perceived cost of inaction feels highest.

The behavioral research on prolonged geopolitical shocks is considerably more nuanced than the research on sudden market crashes, and the distinction matters enormously for how a disciplined investor should be thinking today.

The Whipsaw Effect and What It Does to Investor Judgment

Last week produced a textbook whipsaw. On Friday, Iran’s foreign minister announced the strait was fully open, oil fell more than 10%, and equity markets rallied toward record highs on optimism that the conflict was moving toward resolution. Then the weekend reversed it: Iran closed the strait again, the U.S. seized an Iranian vessel, and Monday opened with oil surging more than 6% and equity futures red. For investors who watched all of this unfold, the emotional sequence was: relief, optimism, hope, reversal, frustration, fear. That is precisely the sequence the behavioral literature identifies as most likely to produce panic exits. The whipsaw does not destroy value directly. What it destroys is the investor’s confidence in their own ability to read the situation, which leads them to defer to their emotions rather than their plan.

Loss Aversion in an Energy Shock Environment

Three concurrent pressures are compounding investor loss aversion in Canada right now. The first is the energy shock itself: gasoline up 21.2% in a single month is psychologically jarring in a way that abstract portfolio losses are not, because it is visible and daily. The second is mortgage renewal stress. CMHC data shows roughly 1.15 million Canadian mortgages renewing in 2026, with many facing payment increases of 15% to 20% compared to pandemic-era rates. A household simultaneously absorbing higher fuel costs and a mortgage payment shock is operating from a fundamentally different risk posture than one that is not. The third is headline noise: the conflict has now produced multiple cycles of hope and reversal, each of which erodes the investor’s patience for holding through uncertainty.

These three pressures interact. Loss aversion research consistently shows that the perceived pain of a loss is roughly twice as powerful as the pleasure of an equivalent gain. When that loss aversion is operating against a backdrop of visible daily financial strain, the threshold for triggering an emotional portfolio exit drops substantially. The investor who might have held through a 5% drawdown in a normal environment may exit at 2% today, because the perceived accumulation of losses across all dimensions of their financial life has already used up their tolerance.

What the Geopolitical Shock Research Actually Shows

A consistent finding in the behavioral literature on geopolitical crises is that investors who sell in the first 72 hours of a prolonged shock almost uniformly underperform those who hold. The reason is not that markets recover immediately. They often do not. The reason is that the exit decision removes the investor from the recovery entirely, and the re-entry decision is almost always delayed because it requires the investor to admit they sold at the wrong time. That second decision, the return to the market, is governed by regret aversion, which is as powerful a behavioral force as loss aversion, and operates in the opposite direction. Investors who exited sit on the sidelines waiting for the “all-clear” signal that rarely arrives in a legible form.

The current conflict has now produced six distinct moments where the “all-clear” appeared to be arriving: each ceasefire announcement, each strait-opening signal, each statement from Trump about “very good conversations.” Each reversal has pushed the perceived recovery date further out, keeping already-exited investors on the sidelines longer and deepening the drag on their returns relative to those who held through the noise.