Global financial markets were jolted on Sunday as Israel launched a series of airstrikes on Iranian military facilities, sending oil and gold prices sharply higher while stock markets across Asia and Europe fell. The attacks, confirmed by Israeli officials as a direct response to recent drone and missile threats from Tehran, mark a dangerous escalation in Middle Eastern tensions and have triggered investor fears of a wider regional conflict.
Brent crude surged more than 5% in early trading, breaching $90 a barrel for the first time since late April, while US West Texas Intermediate climbed above $86. Traders reacted to fears that renewed hostilities could disrupt oil shipments through the Strait of Hormuz — a key maritime chokepoint for global energy supplies.
Gold, widely seen as a safe haven in times of geopolitical crisis, rose to a two-month high of $2,420 per ounce as investors fled riskier assets. Meanwhile, equity markets opened lower across the board. Japan’s Nikkei fell 1.8%, Hong Kong’s Hang Seng shed 2.1%, and European bourses followed suit, with Germany’s DAX and London’s FTSE 100 both down more than 1% in early trade.
The Israeli Defence Forces claimed responsibility for the strikes, stating that they had targeted Iranian Revolutionary Guard Corps facilities believed to be involved in supporting recent attacks on Israeli territory. Iran’s government denounced the operation as an “unprovoked act of war” and vowed retaliation, prompting international calls for restraint.
“This is not a one-off exchange — this is a pivot point,” said Alia Hassan, geopolitical analyst at the International Crisis Institute. “The potential for a protracted conflict is real, and the global economic fallout could be significant.”
The US State Department called for de-escalation but stopped short of condemning the Israeli strikes. President Biden’s administration, already facing pressure over its Middle East policy, reiterated its commitment to Israel’s security while encouraging diplomatic backchannels to prevent further escalation.
Investors are now bracing for further volatility. The VIX volatility index, often referred to as Wall Street’s ‘fear gauge’, rose nearly 20% overnight. Analysts warned that continued uncertainty in the region could feed inflationary pressures through higher energy costs, potentially complicating the US Federal Reserve’s and European Central Bank’s monetary policy outlooks.
“Inflation expectations are already fragile,” said Marcus Lindt of Eurobank Research. “If oil remains elevated and the conflict drags on, central banks will have even less room to manoeuvre, particularly in Europe.”
Currency markets also reacted, with the US dollar gaining ground against the euro and pound, reflecting its traditional role as a safe haven during times of geopolitical risk. Emerging market currencies, especially those in the Middle East and North Africa, were hit hardest.
The broader implications of Israel’s actions remain uncertain, but the immediate impact is clear: heightened geopolitical instability is once again driving global financial turbulence. As markets digest the implications of a potential new war front, the focus now shifts to Tehran’s response — and whether a diplomatic off-ramp still exists.
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