Oil prices surged and global equity markets faltered on Monday after the United States launched strikes against Iran’s nuclear facilities over the weekend, stoking fears of a wider conflict in the Middle East and disruption to global energy supplies.
Brent crude rose as much as 5.7% in early trading before settling around a 2.7% gain to $79.12 a barrel, while U.S. crude climbed 2.8% to $75.98. Investors shifted focus to the narrow Strait of Hormuz — through which nearly a quarter of the world’s oil and 20% of its liquefied natural gas (LNG) flows — amid growing concerns about retaliatory action by Tehran.
U.S. equity futures dropped modestly, with S&P 500 contracts down 0.3% and Nasdaq futures falling 0.6%. Asian shares slipped, with MSCI’s Asia-Pacific index excluding Japan falling 0.5%, and Japan’s Nikkei losing 0.9%. European futures pointed to a weaker open, with EUROSTOXX 50 and DAX futures shedding 0.7% and FTSE futures down 0.5%.
The market turbulence followed a wave of U.S. strikes on Iran’s nuclear facilities in Isfahan, Fordow, and Natanz. Tehran condemned the attack, calling it an assault on its sovereignty and warning of “everlasting consequences.” Israel also continued its military operations, reportedly targeting sites in Tehran and western Iran.
“This kind of uncertainty is quickly becoming the new normal for markets,” said Josh Gilbert, a market analyst at eToro. “Even if we don’t see immediate fallout, the volatility in oil and renewed geopolitical tensions will keep investors cautious.”
Market analysts say much hinges on how Iran chooses to respond.
“It’s very highly likely that Iran will strike back against the United States in some way,” said Dr Ben Zala, a senior lecturer in international relations at Monash University. “Markets across stocks, bonds and currencies will be reactive to developments as they unfold.”
The dollar rose against major peers, reflecting a mild safe-haven bid, while Treasury yields inched higher. Gold prices, which briefly spiked, settled slightly lower at $3,363 per ounce.
Oil and shipping stocks in Asia rallied on speculation that freight rates could rise due to potential disruptions in the Persian Gulf. Defense stocks gained while airline shares tumbled amid the prospect of elevated fuel costs.
Despite the initial surge, some analysts believe the reaction has been relatively restrained due to prior positioning and hedging.
“The downside may be limited in the short term,” said Ataru Okumura, a strategist at SMBC Nikko Securities, citing reduced stock holdings and increased demand for hedging as reasons. He added that massive U.S. fiscal spending in response to conflict, as seen in the Gulf War and Iraq War, had historically lifted U.S. equities.
In bond markets, yield spreads on Asian investment-grade dollar bonds outside Japan widened to their highest level in more than a month, reflecting rising credit risk premiums.
The prospect of further escalation has rekindled fears about global inflation and supply chain disruptions, with particular focus on the Strait of Hormuz — only 33 kilometers wide at its narrowest.
“Selective disruptions that scare off oil tankers make more sense than closing the Strait entirely, as that would also halt Iran’s own exports,” said Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia. He warned that such a scenario could push Brent crude above $100 per barrel.
Meanwhile, geopolitical uncertainty overshadowed an otherwise busy economic calendar. U.S. and European manufacturing data are due later Monday, while Federal Reserve policymakers are set to offer remarks on interest rate trajectories.
San Francisco Fed President Mary Daly stated that U.S. monetary policy was “in a good place,” suggesting a rate cut could come in the fall. However, her view appears more cautious than that of Governor Christopher Waller, who hinted last week at a possible move as soon as July.
Elsewhere, Taiwan Semiconductor Manufacturing Co. shares fell after a Wall Street Journal report said a U.S. official had proposed revoking waivers that allow tech companies to access U.S. technologies in China. Samsung and SK Hynix also posted losses.
With Tehran’s intentions unclear and Israel continuing its operations, the world’s financial markets remain on edge.
“The next move is Iran’s,” said one London-based energy strategist. “And the world is holding its breath.”
