Stock markets around the world slumped and oil prices surged after Israel on Thursday launched a military strike on Iran.
Two hours before the start of trade in the U.S., S&P 500 futures contracts fell 65 points, or 1.1%, to 5,984, while futures on the Dow Jones Industrial Average and Nasdaq Composite dropped 1.1% and 1.4%, respectively.
U.S. benchmark crude oil jumped $4.97, or 7.3%, to $72.91 per barrel. Brent crude, the international standard, rose $4.78, or 6.7%, to $74.15 per barrel.
“Any remaining hopes for sub-$60 [barrel per] oil prices this year must now be buried. Israel’s attacks early Friday against Iran, directed against nuclear facilities, missile sites and senior personnel, are a marked departure from earlier exchanges between the two Middle Eastern powers,” Tom Holland, global research director with investment advisory firm Gavekal, told clients in a note.
Markets in Asia and Europe sold off in overnight trading. Tokyo’s Nikkei 225 fell 0.9%, the Kospi in Seoul lost 0.9%, Hong Kong’s Hang Seng retreated 0.6%, Shanghai Composite Index sank 0.8% and Australia’s S&P/ASX 200 dipped 0.2%. In Europe, Germany’s DAX dropped 1.4%, France’s CAC 40 shed 1% and Britain’s FTSE 100 slipped 0.5%.
Israel’s attack involved a wave of airstrikes on Iranian nuclear facilities, scientists and senior military commanders. Iran responded to the attack by firing more than 100 drones at Israel on Friday morning, according to Israeli officials.
Energy risks
“The main channel by which this escalation could impact the global economy would be through higher oil prices,” analysts with Capital Economics said in a report.
“For what it’s worth, there does not appear to have been any direct impact on oil production or export facilities in Iran. But the key risk for global energy markets is that Iran tries to block the Strait of Hormuz,” they added.
Iranian crude exports are restricted by Western sanctions and import bans, with China the only recipient of the country’s oil. Israel exports only small amounts of oil and and other energy products.
Still, a sustained increase in global energy prices could reverse U.S. progress in lowering inflation, according to JPMorgan analysts.
Inflation remains elevated but has gradually edged closer to the Federal Reserve’s 2% annual target. The Consumer Price Index rose 2.4% in May on an annual basis, cooler than analysts had expected, as energy costs eased and with few signs for now that U.S. tariffs are weighing on consumer spending.
contributed to this report.
