Will political instability or geopolitical conflicts trigger a financial crisis?

Yes, absolutely, and it has happened more than once throughout history. The two are like a spark and gasoline.

You can imagine the global financial market as a super complex, interconnected giant network. Political or geopolitical conflicts are like someone throwing a large stone into this network; the ripples generated will spread to every corner.

Specifically, it mainly happens through the following channels:

1. Confidence Collapses, Everyone Flees

The core of financial markets is "confidence." Money is the smartest and also the most timid; it will always flow to the safest and most profitable places.

• Capital Flight: Suppose Country A suddenly experiences political instability, or is on the verge of conflict with neighboring Country B. You have significant investments in Country A (stocks, real estate, factories). What would you think? You'd certainly worry that your assets might depreciate overnight, or even be confiscated. Your first reaction would be to quickly sell these assets, convert them into hard currencies like USD or gold, and then transfer them to safer countries.
• Chain Reaction: When you do this, thousands of domestic and international investors are doing the same. Everyone is frantically selling off Country A's stocks, bonds, and currency, resulting in a stock market crash and currency collapse in Country A. Banks might fail due to massive runs, and a financial crisis thus begins.

2. Business Disruptions and Supply Chain Breakdowns

The modern economy is globalized; a single mobile phone might require parts from over a dozen countries. Conflicts directly disrupt this cooperation.

• Trade Disruptions: For example, if a conflict occurs in a strait that is a vital global shipping lane, ships might be unwilling to pass through, causing global cargo transportation costs to skyrocket. Companies relying on this route would see their profits significantly decline, and their stock prices would naturally fall.
• Soaring Energy/Raw Material Prices: Many conflicts occur in energy-producing regions (e.g., the Middle East). Once fighting breaks out, oil and natural gas production will decrease, and prices will surge. When oil prices rise, the cost of almost everything else increases (as production and transportation require energy). This leads to severe inflation, making business operations difficult, drastically increasing the cost of living for ordinary people, and making the economy prone to problems.

3. Governments Run Out of Money, Resorting to Printing or Borrowing Extensively

Warfare is the most expensive activity. Where does the government get its money? From taxes or borrowing.

• Massive Debt: During conflicts, government fiscal expenditure surges, while economic activity shrinks and tax revenues decrease. Governments are forced to issue large amounts of national debt to borrow money. If the debt becomes too large and exceeds repayment capacity, people will worry about a potential default. At this point, no one will be willing to lend money to the government, leading to a collapse of government credit and triggering a sovereign debt crisis.
• Hyperinflation: If borrowing is not possible, some governments resort to the worst measure: turning on the printing press to directly print money for spending. The consequence is a flood of currency, money becoming worthless, soaring prices, the public's wealth being wiped out, and the complete collapse of economic order.

4. "Uncertainty" is the Biggest Enemy

Financial markets despise "uncertainty" the most. Bad news is better than no news, because bad news can be priced in, but uncertainty cannot.

During conflicts, no one knows what tomorrow will bring: Will the war escalate? How long will it last? Which countries will be drawn in? What kind of sanctions will be imposed?

In the face of such immense uncertainty, businesses will postpone investment plans, factories will halt hiring, and consumers will tighten their belts, refraining from spending. The entire economic vitality is as if a pause button has been pressed, and a recession and crisis are not far off.

In Summary:

Political and geopolitical conflicts, by undermining confidence, disrupting trade, draining government finances, and creating uncertainty, act as four sharp swords that can precisely strike the most vulnerable points of the financial system. While not every conflict immediately triggers a global financial crisis, it is certainly a very significant fuse, especially in today's tightly interconnected world.