Israel strikes Iran as oil prices surge and markets tumble amid Middle East escalation
Israeli strikes on Iran drive oil prices 5.73% higher while equity futures fall 1.3% as geopolitical tensions escalate ahead of nuclear talks. Gold approaches record highs as investors flee to safe havens.
Israel strikes Iran as oil prices surge and markets tumble amid Middle East escalation
Israeli strikes on Iran drive oil prices 5.73% higher while equity futures fall 1.3% as geopolitical tensions escalate ahead of nuclear talks. Gold approaches record highs as investors flee to safe havens.
Headlines this morning that suggested an Israeli attack on Iran could occur within days have proved prophetic, with news wires reporting that Israel has struck Iran just days before a sixth round of Iran-US nuclear talks was due to take place on Sunday in Oman.
While details are sparse regarding the targets, risk asset markets are not in the mood to wait and find out. US S&P 500 equity futures have fallen by 1.3% to 5972, WTI crude oil has surged 5.73% to $71.89, and gold is trading at $3409 (+0.67%) not far from its $3500 record high. The USD index the DXY is trading higher at 98.03 (+0.2%) finding some support after hitting a three-year low overnight.
Oil could hit $120 as geopolitical premium returns
JP Morgan warned in a note to clients overnight that an attack on Iran, presumably at levels beyond those seen in April and October last year, could send the price of crude oil to $120, driving US CPI to 5%.
The attack comes in the wake of reports late last month that Israel was considering an assault on Iran, potentially seizing the opportunity presented by the diminished retaliatory capabilities of Iran's proxies in the region (Syria, Lebanon, Yemen, and Gaza).
Iran's nuclear programme escalates tensions
The case for an attack became more pressing from an Israeli perspective after the International Atomic Energy Agency (IAEA) reported in late May a significant escalation in Iran's uranium enrichment activities, raising concerns about its nuclear programme.
According to the IAEA report, Iran increased its stockpile of uranium enriched to 60% purity by nearly 50%, reaching 408.6 kg (900.8 lbs) by 17 May, up from 274.8 kg in February. This level is just below the 90% threshold for weapons-grade uranium, and the stockpile is sufficient to produce fuel for approximately ten nuclear weapons if further enriched.
Risk sentiment deteriorates ahead of weekend
This morning's alarming escalation is a blow to risk sentiment and comes at a crucial time after macro and systematic funds have rebuilt long positions and investor sentiment has rebounded to bullish levels. While we await further news and a potential response from Iran, we are likely to see a further deterioration in risk sentiment as traders cut risk-seeking positions ahead of the weekend.
Oil volatility surges
Geopolitical tensions drive energy price swings
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