By Dhara Ranasinghe and Hadeel Al Sayegh
LONDON/ABU DHABI, Feb 28 (Reuters) – The United States and Israel launched strikes on Iran on Saturday, targeting its leadership and plunging the Middle East into a new conflict that President Donald Trump said would end a security threat and give Iranians a chance to topple their rulers.
The strikes put nearby oil-producing Gulf Arab countries on edge as fears of escalation grew, and Tehran responded by launching missiles towards Israel.
Here’s how the conflict could play out across world markets.
OIL SPIKEOil is the main barometer of Middle East tension.
Iran is a major producer and lies opposite the oil-rich Arabian Peninsula across the Strait of Hormuz, through which about 20% of global oil supply passes. Conflict could limit oil entering the global market and push up prices.
Brent crude traded on Friday around $73 a barrel, already up by a fifth this year.
Some oil majors and top trading houses suspended crude oil and fuel shipments via the Strait of Hormuz because of the attacks, four trading sources said on Saturday.
William Jackson, chief emerging markets economist at Capital Economics, said that even if the conflict was contained, Brent might rise to about $80, which was the peak during the 12-day war in Iran last June.
A prolonged conflict affecting supply could cause oil prices to jump to around $100, potentially adding 0.6-0.7 percentage points to global inflation, he said in a note.
WILD SWINGS, EVERYWHERE
The conflict is likely to exacerbate volatility across global markets, which have already swung wildly this year owing to Trump’s tariffs and a sharp tech selloff.
The VIX volatility index has risen by a third this year, and implied U.S. bond volatility is up 15%.
Currency markets are unlikely to be immune, analysts say.
The dollar index fell by around 1% during the June war, CBA notes. But that fall was short-lived and unwound after three or four days.
“In current circumstances, the size of the fall will depend on how large and how long-lasting the conflict is expected to be,” CBA analysts said in a note a week ago.
“If the conflict was long-lasting and disrupted oil supplies, we expect the U.S. dollar would lift against most currencies except Japanese yen and Swiss franc. The U.S. is a net energy exporter and so benefits from higher oil and gas prices that would result from disrupted oil supply.”
Israel’s shekel will almost certainly be another mover – Iran quickly retaliated against Israel on Saturday.
It dropped 5% at the start of the June war and also reacted after Israel struck Iran’s Damascus consulate in April 2024 and when Iran launched missiles at Israel that October.
