Oil and gold prices experienced notable increases following reports from US officials indicating that an Israeli missile had targeted Iran.
Brent crude, the global benchmark, surged by 1.8% to reach $88 per barrel, while gold momentarily approached a record high, peaking near $2,400 per ounce before retracing.
The escalation in prices comes amidst heightened tensions following Iran’s recent direct drone and missile assault, with investors closely monitoring Israel’s response.
Fears of a potential disruption in oil supplies due to escalating conflict in the Middle East have contributed to the market volatility.
Initially, oil prices surged by up to 3.5%. However, gains subsided following claims from Iranian state media asserting “no damage” in Isfahan province, where earlier reports had indicated explosions.
The sharp and sustained rise in oil prices poses concerns over inflation, given the commodity’s crucial role in fuel production for petrol and diesel.
Randeep Somel, a fund manager at M&G Investment Management, highlighted the inflationary implications, stating, “The concern for markets would mainly be the inflationary one, that this would actually add to inflation.”
While inflation rates have shown signs of moderation, the UK continues to grapple with levels above the Bank of England’s 2% target, potentially delaying interest rate adjustments until later in the year.
Mr. Somel remarked on the UK’s inflation rate, stating, “In the UK, the inflation rate is still around 3.2% – still someway off the target – and it is becoming a bit of a concern for policy makers.”
The surge in gold prices reflects investors seeking safe-haven assets amid heightened geopolitical uncertainty.
Concerns over potential disruptions to shipping routes, particularly through the vital Strait of Hormuz between Oman and Iran, have intensified. The strait facilitates approximately 20% of the world’s total oil supply, with major OPEC members heavily reliant on it for oil exports.
Iran, ranking as the seventh-largest oil producer globally and the third-largest OPEC member, underscores the significance of the region in global energy markets.
Vandana Hari, an energy market expert at Vanda Insights, characterized the initial spike in oil prices as a “knee-jerk reaction to fears of a renewed escalation of warfare between Israel and Iran,” highlighting the fragility and volatility in the Middle East.
Stock markets across Asia witnessed declines amid apprehensions regarding the regional situation, with Japan’s Nikkei 225 index dropping 2.7%, Hong Kong’s Hang Seng declining 1.2%, and South Korea’s Kospi falling approximately 1.7%.
