By Chris Dorrell
Oil prices spiked in response to the latest strikes in the Middle East, as fears of a growing conflagration in the region grow.
A barrel of Brent Crude was trading 1.68 per cent higher at $88.57 a barrel, down from a peak of around $90 in the immediate aftermath of the attacks. WTI Crude was up by a similar amount at $84.27.
Gold also rose slightly to $2,380 an ounce. The yellow metal acts is a safe haven and often rises during times of political and economic uncertainty.
Asian equity markets balked, meanwhile, with benchmark indices in Japan and Hong Kong both down sharply.
The spike in oil prices came after US officials said Israel launched missile strikes on Iran in response to the Iranian drone strikes launched over the weekend.
State-run media said that Iranian air defence batteries were launched on Friday morning after explosions near the city of Isfahan, in the centre of the country.
Some analysts have suggested that the attack was de-escalatory, with Iran already saying there was no major damage from the attack. However, the Iranian foreign minister had warned they would give a “decisive and proper response” to any further attacks.
Iran has grounded commercial flights in Tehran and across areas of its western and central regions.
“The news has raised fears that the conflict will escalate further, particularly since Iran had said they would respond to any attack,” Deutsche Bank’s Jim Reid said.
Vandana Hari, an energy analyst at Vanda Insights, said the initial spike was a “knee-jerk reaction to fears of a renewed esaclation of warfare”.
“What the latest events underscore is the heightened fragility and volatility in the Mid East situation,” she noted.
Traders are particularly concerned about the possible knock-on effects to the global oil supply. Around 20 per cent of the world’s total oil supply passes through the Strait of Hormuz, a narrow strip of sea connecting the Persian Gulf to the world’s oceans.
This in turn would risk putting up inflationary pressures in the west at a time when central banks are just getting the initial wave of inflation under control.
