Hong Kong — Oil prices sharply increased, stock markets tumbled, and investors sought refuge in gold Friday amid escalating tensions between Israel and Iran, raising fears of a wider Middle Eastern conflict. The developments followed a significant attack by Israel on Iranian military and nuclear facilities, highlighting the potential for serious disruptions in global energy supply.

On Friday, U.S. oil prices surged by 7.26%, reaching about $72.98 per barrel, while Brent crude climbed 7% to approximately $74.23. In earlier trading, both benchmarks experienced even larger gains, marking the most substantial single-day jump since March 2022, shortly after Russia invaded Ukraine. Overall, oil prices also recorded their largest weekly increase since October 2022.

Market analysts pointed to immediate supply concerns and a growing perception that these geopolitical developments could lead to prolonged instability. Ahmad Assiri, a research strategist at Pepperstone, indicated that the market’s reaction reflects worries extending beyond immediate impacts, suggesting a potential escalation of the conflict.

The stock market responded negatively, with the Dow Jones Industrial Average dropping by 770 points, or 1.79%. Meanwhile, the S&P 500 and Nasdaq Composite also saw declines, falling 1.13% and 1.3%, respectively. This decline halted the S&P’s two-week winning streak, as investors grew apprehensive about potential repercussions from Iran’s response to Israeli strikes.

Reports surfaced that Iran had fired “hundreds of various ballistic missiles” at Israel, claiming it was a part of its significant retaliation against the attacks. This led to a spike in Wall Street’s fear gauge, the CBOE Volatility Index, which increased by 19%, showcasing the heightened uncertainty among investors.

Airlines and travel companies faced significant stock declines, with United Airlines, Delta Air Lines, and American Airlines all experiencing drops of over 4%. Similarly, shares of European airlines fell, mirroring the turbulent sentiment surrounding the escalating crisis. Conversely, defense contractors saw increases in their stock values, with Lockheed Martin and General Dynamics gaining ground.

In the wake of Israel’s aggressive military action, the country declared a state of emergency, anticipating a fierce Iranian response. Iranian Supreme Leader Ayatollah Ali Khamenei vowed that Israel would face “severe punishment” for its actions, further intensifying geopolitical tensions.

U.S. Secretary of State Marco Rubio clarified that the United States did not participate in the Israeli operation while warning Iran against harming American interests. Former President Donald Trump commented that Israel’s efforts to neutralize Iran’s nuclear capabilities could ultimately benefit financial markets.

Investors are closely monitoring the potential consequences of Iran’s retaliation, especially regarding the critical Strait of Hormuz, through which a substantial portion of the world’s oil supply passes. Analysts suggest that if Iran’s involvement results in significant disruptions, oil prices could soar substantially, with estimates predicting a rise of around $7.50 per barrel.

Despite the increase in oil prices, OPEC indicated that there would be no immediate need to release emergency stockpiles, as current market conditions do not warrant such a measure. The organization’s Secretary General reaffirmed a cautious approach, hoping the situation will stabilize without further escalations.

Market analysts have suggested that geopolitical unrest from the region could lead to increased oil prices, thereby reigniting inflation and complicating the economic outlook. The Federal Reserve will meet next week, and any sustained rise in energy costs could influence their decisions regarding interest rates.

Overall, the ongoing situation illustrates the delicate balance in global oil markets, where even isolated conflicts can spark widespread economic concerns.