London — Equity markets have remained steady, but global oil prices have surged after Hamas launched a surprise lethal attack on Israel. Israel has since declared war on Gaza, igniting concerns of an escalating conflict in the oil-rich Middle East.
The escalating crisis has sent ripples through global stock markets, though energy companies saw a boost from the rising oil prices, which enhance their profits and revenues.
Safe-haven assets like the dollar, yen, Swiss franc, and gold saw significant gains due to their appeal during times of increased geopolitical unrest.
“The unexpected attack by Hamas has heightened concerns about further instability in the Middle East, potentially disrupting oil flows when the market is already tight and prices are elevated,” commented Craig Erlam, a senior market analyst at OANDA.
Stone X analyst Fawad Razaqzada noted that with markets currently in a “risk-off” stance, “investors fear that Israel’s response, which has already been severe, will escalate tensions with many neighboring countries, including Iran.”
The Middle East crisis has amplified concerns about essential oil supplies, especially when supply anxieties are already heightened due to production cuts by Saudi Arabia and Russia.
The renewed conflict has heightened concerns about its impact on inflation, as rising energy costs become a primary factor in surging prices. This presents a new challenge for central banks as they aim to moderate interest rate increases to prevent economic downturns.
The unexpected attack, followed by Israel’s war declaration, has resulted in over 1,200 casualties. This has sparked worries that the escalating conflict might involve both the United States and Iran.
Israeli Defense Minister Yoav Gallant ordered a comprehensive blockade of the Gaza Strip on Monday, while the military intensified its airstrikes on the Palestinian territory.
The Kremlin expressed concerns about the “high risk” of a third party entering the conflict. This came after the U.S. affirmed its unwavering support for Israel and announced the relocation of its warships closer to the region.
“The alarming events in Israel have driven up oil prices as investors evaluate the potential of the conflict to disrupt Middle Eastern supply, especially if other nations become involved,” stated Susannah Streeter, Director of Money and Markets at Hargreaves Lansdown.
Given the Israeli government’s anticipation of a prolonged and challenging war, there’s growing apprehension that continuous retaliatory strikes on Gaza might pull Iran into the fray, affecting the region’s energy flow.
In response to the economic implications, the Bank of Israel initiated the sale of up to $30 billion in foreign currency reserves. This move aims to stabilize the shekel, which has plummeted to its lowest value against the dollar in seven years.
(With agency inputs)