(Bloomberg) – Oil jumped and stocks slid after Israel attacked Iran’s nuclear program facilities and killed senior military commanders in a significant escalation of tensions in the Middle East.
Brent crude gained 7.6%, having earlier surged as much as 13% in the biggest intraday jump since March 2022. S&P 500 futures were down 0.9% after paring deeper losses.
The dollar rebounded 0.5% from Thursday’s three-year low. U.S. Treasuries were little changed, with the yield on the 10-year note at 4.35%.
The airstrikes against Iran’s nuclear program and ballistic-missile sites renewed a standoff between two adversaries that risks spiraling into a wider conflict. While the reaction was strongest in crude oil, other pockets of the market suggested that investors are watching how long the tensions will last and whether the situation escalates.
“We are seeing behavior fully consistent with risk-off,” said Geoff Yu, FX and macro strategist at Bank of New York Mellon Corp. “This is probably the starting point for markets, but as we know correlations have been variable in recent weeks and much will depend on the reaction of Iran, the US and others.”
The attacks are coming at a time when equity markets had recovered from a slump in April that was caused by U.S. President Donald Trump’s tariff war. An index of global stocks touched a record Thursday, gaining more than 20% from a low hit in April.
“Short term it will be used as an excuse or a catalyst by investors for some profit taking, after a very strong comeback of risk assets,” said Vincent Mortier, chief investment officer at Amundi SA. “Price reaction of historical safe havens has been minimal. We believe the events of last night will remain localized and will not degenerate into something more global.”
Energy stocks rose in U.S. premarket trading on the back of crude oil gains, with Exxon Mobil Corp. and Chevron Corp. both advancing more than 2.5%. Defense contractors such as RTX Corp. and Lockheed Martin Corp. also moved higher on expectations of elevated military spending. Travel stocks were under pressure.
Israel said the operation will continue for “as many days” as it takes to remove the threat. Iran vowed to retaliate against Israel and, possibly, U.S. assets in the Middle East.
Trump urged Iran to make a deal “before it is too late.”
The strikes follow repeated warnings by Israeli Prime Minister Benjamin Netanyahu to cripple Iran’s nuclear program. Iran had previously said it would inaugurate a new uranium-enrichment facility in response to censure by the UN atomic watchdog over its nuclear program.
Any persistent gain in oil prices could fuel inflation, adding to the challenges confronting the Federal Reserve and other central banks as policymakers also contend with the repercussions of Trump’s trade war. For now, changes in the prices of crude futures point to fears of a drawn-out conflict.
“This goes against what central banks were expecting for oil prices and could potentially change their scenario by heating up inflation and slowing growth,” said Alexandre Hezez, chief investment officer at Group Richelieu.
