Oil prices surged while stock markets fell on Friday following Israel’s attacks on Iranian nuclear and military sites, significantly escalating the risk of conflict between the two nations and heightening concerns about regional instability in the Middle East. Futures for major US indices exhibited declines, with S&P 500 futures down 0.9%, Dow Jones futures falling 1%, and Nasdaq seeing a 1.1% drop.
US benchmark crude oil saw a staggering increase of $4.73, or 6.9%, rising to $72.77 per barrel—the largest spike since the onset of the conflict in Ukraine over three years ago. Similarly, Brent crude climbed $4.58 to $73.94 per barrel, marking its most significant one-day increase since the Russian invasion. Analysts believe oil prices may continue to rise short-term, but the crucial factor will be whether oil exports are impacted by the ongoing tensions.
Richard Joswick from S&P Global Commodity Insights cautioned that although prices have surged following exchanges of attacks, they historically decrease once it becomes evident that the conflict does not escalate into a direct attack on oil supply. However, he noted that risks could considerably increase if Iran were to retaliate with broader strikes. Currently, China remains the sole buyer of Iranian oil, though it might turn to other Middle Eastern suppliers and Russia if necessary.
In Europe, stock indices mirrored the negative sentiment from the US markets, with Germany’s DAX down 1.3%, France’s CAC 40 slipping 0.9%, and the UK’s FTSE 100 decreasing by 0.2%. Correspondingly, the yield on the US 10-year Treasury bond decreased to 4.35%, as investors gravitated towards safer assets amid the uncertainty.
In currency markets, the US dollar strengthened, trading at 144.12 yen, while the euro fell against the dollar. The rise in Treasuries and the dollar typically signifies a risk-averse climate among investors.
Later on Friday, the University of Michigan’s consumer sentiment report is set to be released, and the upcoming week will see the Federal Reserve convening for a two-day policy meeting, with expectations that interest rates will remain unchanged.
In the Asian markets, the notable declines included Japan’s Nikkei 225 and South Korea’s Kospi, both dropping 0.9%. Similarly, the Hang Seng and Shanghai Composite indices experienced losses of 0.6% and 0.8%, respectively, while Australia’s S&P/ASX 200 fell 0.2%. Despite these losses, experts believe that Asian markets might recover rapidly due to their limited exposure to the conflict, especially as ties with Saudi Arabia and the UAE strengthen.