- Past negotiations teach us that it is imperative for both sides to save face in order to create a lasting peace.
- As tempting as it may be, seeking capitulation and humiliation of the defeated party leads to long-term instability and rarely leads to long-term success.
- As we saw in the resolution to the Korean War, countries and economies can look through uncertainty, as long as the status quo is maintained.
Market commentary currently reflects that the 2026 Iran conflict appears to still be at a stalemate, with little progress being made in negotiations. The American side believes that US military superiority will ultimately win an outright physical struggle. Whereas the Iranian regime has been seeking to damage oil and gas supply chains and infrastructure within the region to force the US into some form of deescalation1. The negotiating deadlock is causing consternation within markets as a solution appears out of reach.
This is a good opportunity to review historical negotiations around conflict and how they ultimately played out.
In 1918, the Allied Powers were victorious over the Central Powers, and the Great War came to an end. What followed were months of negotiations at the Paris Peace Conference and the ultimate signing of the Treaty of Versailles2. The negotiations excluded Germany and other defeated nations and, as well known, pushed for harsh punishment of the defeated nations in terms of territorial losses, reparations and military restrictions. The victors left ultimately successful in their aims but created the conditions for the Second World War in their search for the utter capitulation of Germany. So, lesson one is perhaps not to seek out utter destruction and humiliation of your enemy as it creates long-term instability.
Figure 1: Source https://hti.osu.edu/opper/lesson-plans/treaty-of-versailles/images/the-source
The Korean war of 1950 to 1953 is still technically ongoing, given no peace deal has been signed past a ceasefire signed in 19533. A demilitarised zone separates the two warring nations which runs 241 kilometres, across the width of the Korean peninsula4. The armistice negotiations lasted for two years and 158 formal meetings before an agreement was reached5. The Geneva Conference of 1954 aimed to reach a permanent settlement, but by that point Cold War tensions were escalating, and a final agreement was never found6. Today South Korea is an incredibly successful, modern economy, 13th in the world in terms of GDP7. North Korea’s economy, however, sits at 135th in terms of nominal GDP8 and is a dictatorship, bordering on absolute monarchy. Perhaps the lesson to be drawn here is that negotiations may drag on, unresolved, for many years, but the world moves on and economies can still function whilst the uncertainty exists.
The Cuban Missile Crisis was arguably the closest humanity has come to annihilation. It started in October 1962 when the United States discovered that the Soviet Union was secretly installing nuclear missiles in Cuba, just 90 miles from the US9. The political heavyweights of John F. Kennedy and Nikita Khrushchev were locked in a verbal battle to avoid nuclear war. The crisis peaked around 27th October, often referred to as “Black Saturday”. During this day, tensions reached their highest point, when a U.S. U-2 spy plane was shot down over Cuba, and Khrushchev demanded the removal of U.S. missiles in Turkey, bringing the world to the brink of nuclear war10. Ultimately, the key to tensions subsiding was both sides privately agreeing to compromise. Khrushchev agreed to remove missiles from Cuba and Kennedy agreed to remove missiles from Turkey – and not invade Cuba -allowing them to both save face at home, whilst appeasing the other side11. Perhaps our third lesson is that when faced with unthinkable consequences, both sides need to allow the other a way out of the conflict that allows some degree of saving face at home.
Figure 2: https://www.jchistorytuition.com.sg/jc-history-tuition-notes-cuban-missile-crisis-cartoon-analysis/
Bowmore portfolios
We manage portfolios to avoid being exposed to any binary outcomes. This is known as an “all-weather” strategy, designed to help portfolios remain resilient across a range of market conditions. This plays out most obviously within broad asset allocation, where we balance our growth-focussed holdings, i.e. equities, with more stable holdings in the fixed income and alternative space.
Drilling down further, for example amongst our Emerging Market allocation, we have a constructive view on China through a holding in the Matthew China Innovators Fund, and a constructive view on smaller, frontier Emerging Market economies through our Redwheel Next Generation EM fund. The China fund has risen strongly so far this year due to the manager’s exposure to AI opportunities and hardware technology which are expanding and benefiting from the Chinese government’s agenda to build self-sufficiency, particularly in areas like AI.
On the other hand, the Redwheel fund has delivered a more modest return year-to-date as smaller, more energy exposed countries have taken a knock from the rising energy prices, reflecting differing regional dynamics.
As always, it remains important for us to articulate our view in a balanced way, seeking to minimise risk where possible.
Source: AlphaTerminal, data as 05/05/2026
The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.
Sources:
[1] Iran’s War Strategy: Don’t Calibrate—Escalate
[2] Treaty of Versailles – Wikipedia
[3] Armistice Agreement for the Restoration of the South Korean State (1953) | National Archives
[4] United Nations Command > History > 1951-1953: Armistice Negotiations
[5] United Nations Command > History > 1951-1953: Armistice Negotiations
[6] United Nations Command > History > 1951-1953: Armistice Negotiations
[7] Economy of South Korea – Wikipedia
[8] Economy of North Korea – Wikipedia
[9] Cuban Missile Crisis – Wikipedia
[10] Milestones in the History of U.S. Foreign Relations – Office of the Historian