Oil and gold prices surged following reports from US officials indicating an Israeli missile strike on Iran. Brent crude, the global benchmark, rose by 1.8% to $88 a barrel, while gold briefly neared record highs, reaching nearly $2,400 an ounce before retreating. Investors monitored Israel’s response to Iran's recent direct drone and missile attack with apprehension, concerned about potential disruptions to oil supplies in the event of escalating conflict in the Middle East.
Initially, oil prices soared by up to 3.5%, but later receded after Iranian state media claimed no damage in Isfahan province, where earlier reports had suggested explosions. Sharp and sustained increases in oil prices could exacerbate inflation, as oil is a key component in the production of fuels like petrol and diesel, which heavily impact living costs globally.
Randeep Somel, a fund manager at M&G Investment Management, emphasized the inflationary concerns, particularly in the UK, where inflation rates remain above the Bank of England's target. Although the situation has not escalated further, policymakers are wary of prolonged market disruption.
Amidst the uncertainty, gold prices rose, reflecting its status as a safe-haven investment. The heightened tensions also raised fears about potential disruptions to shipping through the crucial Strait of Hormuz, which facilitates about 20% of the world's oil supply. OPEC members, including Iran, largely rely on this route for oil exports.
Energy market expert Vandana Hari noted the knee-jerk reaction in oil markets, emphasizing the increased fragility and volatility in the Middle East. Stock markets in Asia responded negatively, with indices in Japan, Hong Kong, and South Korea experiencing declines amid concerns over regional stability.
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