London. Global financial markets recoiled sharply on Monday as escalating military conflict in the Middle East sent oil prices soaring, hammered equity markets, and triggered a strong rally in the US dollar, various international media reported.
Oil prices surged to multi-month highs as investors braced for potential disruptions to global energy supplies.
Brent crude jumped about 10 percent to $79.90 a barrel.
It briefly touched $82.00 in early trade. US West Texas Intermediate crude rose 8.2 percent to $72.64 per barrel.
Safe-haven assets rallied. Gold climbed 2.6 percent to $5,413 an ounce as investors sought protection from rising geopolitical risk.
The moves followed fresh Israeli air strikes targeting Tehran and attacks on Iran-backed Hezbollah militants in Lebanon.
Iran responded by launching a new wave of missiles towards what it described as enemy targets.
US President Donald Trump signalled that the joint US-Israeli military assault on Iranian targets could continue for weeks, according to Reuters.
Markets turned sharply risk-averse as the possibility of a prolonged conflict increased.
Strait of Hormuz
All eyes were on the Strait of Hormuz, through which around a fifth of the world’s seaborne oil trade flows and 20 percent of its liquefied natural gas, Reuters reported.
Although the vital waterway remains open, marine tracking data showed tankers clustering on either side of the strait.
Many vessels appeared unwilling to transit the area amid fears of attack and rising insurance costs.
“At least in the short term, the disruption to global energy supply is substantial, and this clearly adds upside risks to the oil price,” Michael Langham, emerging markets economist at Aberdeen Investments, told Reuters.
He added: “A global oil price shock is not the intention of the Trump administration ahead of US mid-term elections in November.”
Analysts warned that prolonged supply disruption could reignite global inflation and weigh heavily on economic growth.
Citi said Brent crude could trade between $80 and $90 a barrel over the coming week.
Goldman Sachs estimated a real-time geopolitical risk premium of $18 per barrel.
Wood Mackenzie warned that oil prices could exceed $100 a barrel if tanker flows through the strait are not restored quickly.
“The disruption creates a dual supply shock: not only are current exports through the Strait halted, but OPEC+ additional volumes and ultimately most of OPEC’s spare capacity are inaccessible while the waterway remains closed,” Wood Mackenzie analysts told Reuters.
JPMorgan estimated that crude exports through the strait have already fallen to about 4 million barrels per day from the usual 16 million.
The bank said Gulf producers could manage for roughly 25 days using storage and tanker capacity but warned that restrictions lasting three to four weeks could drive Brent crude above $100.
Stock markets
Stock markets worldwide tumbled. Europe’s STOXX 600 index slid 1.7 percent.
Asia-Pacific shares excluding Japan dropped 1.8 percent. US S&P 500 futures were down 1.5 percent.
Banking stocks led declines amid concerns about slower economic growth and rising credit risks. European bank shares fell 3.6 percent.
Airline stocks slumped 5 percent as investors priced in higher fuel costs and weaker travel demand.
Technology stocks also retreated as investors reduced exposure to risk.
Energy shares surged. European energy stocks climbed 4 percent to a record high.
BP and Shell both gained nearly 6 percent. Defence stocks also advanced.
In the Middle East, the United Arab Emirates and Kuwait temporarily closed their stock markets, citing “exceptional circumstances”.
Currency markets reflected a sharp flight to safety.
The US dollar surged against major currencies.
The euro and sterling each fell about 1 percent, trading at $1.1704 and $1.3347 respectively.
The dollar gained 0.6 percent against the Japanese yen and 0.5 percent against the Swiss franc.
“The dollar’s correlation to risk is back,” Jordan Rochester, head of fixed income and currency strategy EMEA at Mizuho told Reuters.
“After nearly a year post Liberation Day of FX correlations being junk and macro frameworks out the window, this new geopolitical crisis has snapped us back to normal,” he added.
Bond markets volatile
US 10-year Treasury yields briefly fell to an 11-month low of 3.926 percent on a rush to safety before rebounding to around 3.97 percent as inflation concerns resurfaced.
Higher oil prices could make the Federal Reserve less inclined to cut interest rates, traders said.
CNN reported that oil futures surged sharply when markets reopened after the weekend strikes.
US crude rose about $8 a barrel, or 12 percent, to around $75 as futures trading opened Sunday evening, according to CNN.
“Brent crude, the international benchmark, rocketed more than 12 percent higher to about $82 a barrel.”
Meanwhile, stock futures fell sharply. Futures for the S&P 500, Nasdaq and Dow Jones indices all declined by more than 1 percent.
However, futures for Exxon, Chevron and other major oil producers rose about 2 percent, reflecting expectations of higher profits from rising energy prices.
Investors now await a series of key US economic data releases this week, including manufacturing surveys, retail sales and payrolls figures.
Markets remain highly sensitive to further developments in the Middle East, with traders warning that prolonged hostilities could unleash sustained volatility across global financial systems.
