Investors and markets react cautiously to US attack on Iran’s nuclear sites

Global markets displayed a mixed response as news broke of the US military strike on Iran’s nuclear facilities, with investors weighing the potential for escalating geopolitical tensions against the immediate impact on oil supplies and regional stability. While some sectors saw sharp movements, others remained subdued, reflecting the uncertainty surrounding the long-term consequences of the attack.

Equity markets experienced volatility, particularly in energy and defence stocks. Oil prices surged initially as traders anticipated potential disruptions to Middle Eastern supply chains. Brent crude jumped over 3% in early trading before paring some gains as Saudi Arabia and other OPEC members signalled readiness to stabilise the market. Defence contractors, meanwhile, saw a boost as investors speculated on increased military spending in response to heightened tensions.

Safe-haven assets, including gold and US Treasuries, attracted inflows as risk aversion crept into the market. The yen and Swiss franc also strengthened slightly, though the dollar index held steady amid expectations of continued Federal Reserve tightening. Analysts noted that while the immediate reaction was muted compared to past geopolitical shocks, the situation remains fluid, and further escalation could trigger sharper moves.

In Europe, stocks dipped as the region’s exposure to Middle Eastern energy supplies left investors cautious. Asian markets, however, were more resilient, with some indices even posting gains as traders focused on local economic data. The reaction in emerging markets was uneven, with oil-importing nations seeing currency pressures while exporters benefited from higher crude prices.

The attack has reignited debates about inflation risks, particularly if prolonged conflict leads to sustained energy price increases. Central banks, already grappling with stubborn inflation, may face renewed pressure to maintain higher interest rates for longer. For now, however, most investors appear to be adopting a wait-and-see approach, cautiously monitoring developments before making significant portfolio adjustments.

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