Oil and gold prices have gone up after US officials confirmed that an Israeli missile had hit Iran.
Brent crude rose by 1.8% to $88 a barrel while gold jumped to almost a record high before rebounding to nearly $2,400 an ounce.
Investors have been monitoring Israel’s reaction to Iran’s direct incursion into the country days ago after it launched missile and drone attacks.
There are serious concerns an escalation in the Middle East conflict could disrupt oil supplies.
Before news of the Israeli attack broke, oil prices were expected to fall during the week as traders priced in the increased risk of all-out war in the Middle East. They will have to reconsider now.
The news of an Israeli strike had triggered a sharp spike in oil prices by as much as 3.5%. However, prices fell south after Iranian state media said there was no significant damage to its facilities in the Isfahan province where explosions were reported. Iranian media confirmed that three drones were neutralized by the country’s air defence system over the city.
It might not be the last of Israeli attacks and with Tehran promising an even bigger response, fears over an escalation will continue to be heightened, leading to even bigger concerns about supply disruptions.
The increased hostilities in the region has naturally to concerns surrounding shipping through the Strait of Hormuz between Oman and Iran. With about 20% of the world’s total oil supply going through it, its importance cannot be overemphasised. Saudi Arabia, Iran, the UAE, Kuwait and Iraq – send a vast majority of their oil exports through the strait.
Fuel and energy prices have been a major determinant of the cost of living globally over the last few years and a sudden sharp and sustained increase in oil prices will only trigger inflation.