Risky Business: A Study of Insurgent Violence & Investor Behavior in the Middle East

Abstract

When does insurgent violence move markets? Current scholarship explains why weaker actors target high-value assets and why political shocks move prices, but not which attacks cause insurers, carriers, and investors to reassess revenue continuity. This thesis fills that gap by introducing market-visible vulnerability (MVV): insurgent attacks produce measurable changes in investor behavior when they expose an economically sensitive asset as credibly contestable, forcing private actors to treat disruption as an ongoing condition. MVV requires three conditions—an economically sensitive target, a credible and sustained threat, and visible state involvement—and I test it across three cases representing distinct economic dependencies. The 2019 Houthi strikes on Abqaiq drove an 11.7% single-day jump in Brent crude and widened Saudi sovereign CDS spreads by 40%. The Houthi Red Sea campaign raised war-risk premiums to 2% of vessel value, cut corridor freight volumes by 78%, and showed that even the most powerful naval coalition in recent history could not restore commercial stability. After October 7, Ben Gurion’s international connectivity collapsed by nearly half, Israeli equities fell by 17%, and Israel nationalized its own airport’s war-risk insurance market when private underwriters exited. I find that the most consequential form of insurgent coercion operates through the pricing decisions of insurers, carriers, and investors, whose behavior determines whether state power remains commercially and fiscally viable.