Global markets are reeling after Israel’s recent attacks on Iran, triggering a significant surge in oil and gold prices and a widespread fall in stock markets. Experts warn of a potential ‘stagflationary shock’ as the escalating Middle East conflict threatens to disrupt global oil supplies and economic stability.
Oil prices skyrocket amid Middle East tensions
Oil prices have seen a dramatic increase following Israel’s strikes on Iran. Brent crude initially jumped by over 10%, settling at a 5.7% increase to $73.29 per barrel, marking its largest daily rise since April 2023. This surge is attributed to fears of supply disruptions, particularly concerning the Strait of Hormuz, a critical shipping route for global oil flows.
- UniCredit analysts suggest that a prolonged blockade of the Strait of Hormuz could push Brent prices towards $130 per barrel.
- The current rise places this week’s oil price increase among the top 19 largest weekly rises since 1988.
Global markets experience widespread decline
Stock markets across the globe have reacted negatively to the escalating conflict. The FTSE 100, along with major European and US indices, closed in the red.
- FTSE 100: Down 0.4%, with airlines like IAG and easyJet being the top fallers due to rising fuel costs.
- European Markets: France’s CAC, Germany’s DAX, Italy’s FTSE MIB, and Spain’s IBEX all lost over 1%.
- US Markets: The Dow Jones, S&P 500, and Nasdaq Composite all saw significant drops, with travel companies like Carnival, United Airlines, and Delta Air Lines among the hardest hit.
Conversely, defence stocks such as BAE Systems, Lockheed Martin, and Northrop Grumman, along with oil companies like BP and Shell, saw their share prices rise.
Warnings of ‘stagflationary shock’
Mohamed El-Erian, economic advisor to Allianz, has cautioned that the rising oil prices risk a ‘classic stagflationary shock’. This scenario involves undermining economic growth while simultaneously fuelling inflation.
- Consumers face increased income uncertainty and higher petrol prices.
- The probability of interest rate cuts has decreased.
- The US’s non-involvement in the attacks adds to the instability of the US-led global economic order.
Impact on shipping and aviation
The conflict has also significantly impacted the shipping and aviation industries. Several countries, including Greece and the UK, have advised their merchant shipping fleets to avoid certain areas and log voyages through the Strait of Hormuz.
- UK-flagged vessels are advised to avoid the southern Red Sea and Gulf of Aden.
- Airlines, including Air France-KLM, Deutsche Lufthansa, and IAG, saw sharp declines as airspace over the region was closed.
- Energean, a UK gas producer, temporarily suspended production off the coast of northern Israel due to the geopolitical escalation.
Gold prices soar as investors seek safe havens
Gold prices have surged, trading about 1% higher at $3,426 an ounce, nearing its record high of $3,500 seen in April. This reflects a flight to safety by investors amidst the heightened geopolitical uncertainty.
Sources
- Oil surges after Israel’s attack on Iran, risking ‘stagflationary shock’ – as it happened | Business, The Guardian.
- Business news live: Oil prices surge at highest rate in years amid Israel-Iran escalations while FTSE 100
falls, The Independent. - Oil and gold prices soar and stock markets fall after Israel’s attacks on Iran | Stock markets, The Guardian.
