Israel launches major strike on Iran: What is the market fallout?
European equities tumbled when the market opened on Friday and oil prices surged, as investors reacted to Israel's large-scale air strikes on Iran's nuclear infrastructure, fuelling fears of a broader Middle East conflict.
The operation, named Rising Lion, marks the most extensive Israeli military action on Iranian soil to date, targeting over 100 facilities including the Natanz complex and missile sites near Tehran.
As of 9.15am CEST, the Euro STOXX 50 had dropped 1.5%, extending weekly losses to 2.7% — the worst performance since early April.
Financials led the downturn among Eurozone blue chips. Deutsche Bank fell 2.73%, UniCredit 2.56%, Banco Bilbao Vizcaya Argentaria 2.48% and Banco Santander 2.46%.
Germany's DAX lost 1.34% to 23,453, France's CAC 40 dropped 1.35% to 7,660, Italy's FTSE MIB retreated 1.68% to 39,271, and Spain's IBEX 35 fell 1.70% to 13,849.
Oil prices surged following the Israeli strike, as markets began to price in a higher geopolitical risk premium. Brent crude jumped over 5% to trade at $73 (€68) per barrel, while West Texas Intermediate rose to $71.5 (€66.60). For the week, oil prices are up more than 10%, on track for the strongest weekly gain since October 2022.
As energy prices rallied, oil majors such as Italy's Eni and Spain's Repsol gained 2%.
German defence powerhouse Rheinmetall also rose 2% as investors turned to military and security-exposed stocks.
Dutch TTF natural gas futures climbed 2% to €37.12 per megawatt hour, amid concerns over potential disruptions to energy flows.
The Israeli campaign involved over 200 fighter jets, according to the IDF, and reportedly resulted in the death of senior Islamic Revolutionary Guard Corps commanders Hossein Salami and Mohammad Bagheri.
Demand for safe-haven assets surged. Gold rose 1% to $3,430 (€3,200) per ounce, nearing its all-time high of $3,500. Silver also held ground, hitting $36.5 per ounce overnight.
The dollar gained strength following days of steady declines. The euro fell 0.5% to $1.1540 after touching a three-year high of 1.16 on Thursday. On the data front, Germany's final inflation reading for May was confirmed at 2.1% year-over-year. Spain's annual inflation was upwardly revised from 1.9% to 2%.
The pound also slipped 0.5% to $1.1350.
The Israeli shekel tumbled 1.8% against the dollar, heading for its steepest daily loss since the Hamas attack of October 2023.
'The Israeli strike on Iran's nuclear facilities has sent oil prices spiking and has offered the oversold and undervalued dollar a catalyst for a rebound,' said Francesco Pesole, currency strategist at ING.
While there are currently no confirmed disruptions to oil production, analysts warn that the situation could escalate rapidly.
'The key difference from previous standoffs is that nuclear facilities have now been targeted,' Pesole added.
Warren Patterson, head of commodities research at ING, noted: 'In a scenario where we see continued escalation, there's the potential for disruptions to shipping through the Strait of Hormuz. Almost a third of global seaborne oil trade moves through that route.'
He warned that up to 14 million barrels per day could be at risk, with oil potentially surging to $120 per barrel in the event of a prolonged disruption — levels not seen since 2008.
European indexes took a hit on Friday, following a dip in Asian markets, on news that Israel had attacked Iran's capital. The strikes came amid the ramping up of tensions over Tehran's rapidly advancing nuclear program.
Oil prices, on the other hand, soared — linked to concerns that the conflict could restrict supply.
US benchmark crude oil had risen 5.3% to around $71.7 per barrel as of 9.30 CEST. Brent crude, the international standard, increased by 5.15% to $72.93 per barrel.
In share trading, the EURO STOXX 50 fell 1.37% to 5.287,11, while the broader STOXX 600 fell 0.95% 544,64.
Germany's DAX dropped 1.3% to 23.463,56 and Italy's FTSE MIB slipped 1.53% to 39,315.48. Spain's IBEX 35 fell 1.56% to 13,869.00 and France's CAC 40 dropped 1.03% to 7,682.33.
In Asian, Tokyo's Nikkei 225 fell 0.89% to 37,834.25 at close, while the Kospi in Seoul edged 0.87% lower to 2,894.62.
Hong Kong's Hang Seng retreated 0.91% to 23.817,36 and the Shanghai Composite Index lost 0.75% to 3,377.00.
Australia's S&P/ASX 200 drifted 0.21% lower to 8.547,40.
An Israeli attack on Iran is in "our top ten of global risks', but 'Asian markets are expected to recover quickly as they have relatively limited exposure to the conflict and growing ties to unaffected Saudi Arabia and the UAE', said Xu Tiachen of The Economist Intelligence.
Following the strikes on Iran, S&P 500 futures dropped 1.38%, Nasdaq 100 futures fell 1.46%% and Dow Jones Industrial Average futures fell 1.29% by around 3.45am ET.
On Thursday, US stock indexes had ticked higher following another encouraging update on inflation across the country.
The S&P 500 rose 0.4% to 6,045.26. The Dow Jones Industrial Average added 0.2% to 42,967.62, and the Nasdaq Composite gained 0.2% to 19,662.48.
Oracle pushed upward on the market after jumping 13.3%. The tech giant delivered stronger profit and revenue for the latest quarter than analysts expected, and CEO Safra Catz said it expects revenue growth 'will be dramatically higher' in its upcoming fiscal year.
That helped offset a 4.8% loss for Boeing after Air India said a London-bound flight crashed shortly after taking off from Ahmedabad airport on Thursday with 242 passengers and crew onboard. The Boeing 787 Dreamliner crashed into a residential area near the airport five minutes after taking off.
Stocks broadly got some help from easing Treasury yields in the bond market following the latest update on inflation. Thursday's update said inflation at the wholesale level wasn't as bad last month as economists expected.
Wall Street took it as a signal that the Federal Reserve will have more leeway to cut interest rates later this year in order to give the economy a boost.
The Fed's next meeting on interest rates is scheduled for next week, but the nearly unanimous expectation on Wall Street is that officials won't cut.
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As of 9.15am CEST, the Euro STOXX 50 had dropped 1.5%, extending weekly losses to 2.7% — the worst performance since early April. Financials led the downturn among Eurozone blue chips. Deutsche Bank fell 2.73%, UniCredit 2.56%, Banco Bilbao Vizcaya Argentaria 2.48% and Banco Santander 2.46%. Germany's DAX lost 1.34% to 23,453, France's CAC 40 dropped 1.35% to 7,660, Italy's FTSE MIB retreated 1.68% to 39,271, and Spain's IBEX 35 fell 1.70% to 13,849. Oil prices surged following the Israeli strike, as markets began to price in a higher geopolitical risk premium. Brent crude jumped over 5% to trade at $73 (€68) per barrel, while West Texas Intermediate rose to $71.5 (€66.60). For the week, oil prices are up more than 10%, on track for the strongest weekly gain since October 2022. As energy prices rallied, oil majors such as Italy's Eni and Spain's Repsol gained 2%. German defence powerhouse Rheinmetall also rose 2% as investors turned to military and security-exposed stocks. Dutch TTF natural gas futures climbed 2% to €37.12 per megawatt hour, amid concerns over potential disruptions to energy flows. The Israeli campaign involved over 200 fighter jets, according to the IDF, and reportedly resulted in the death of senior Islamic Revolutionary Guard Corps commanders Hossein Salami and Mohammad Bagheri. Demand for safe-haven assets surged. Gold rose 1% to $3,430 (€3,200) per ounce, nearing its all-time high of $3,500. Silver also held ground, hitting $36.5 per ounce overnight. The dollar gained strength following days of steady declines. The euro fell 0.5% to $1.1540 after touching a three-year high of 1.16 on Thursday. On the data front, Germany's final inflation reading for May was confirmed at 2.1% year-over-year. Spain's annual inflation was upwardly revised from 1.9% to 2%. The pound also slipped 0.5% to $1.1350. The Israeli shekel tumbled 1.8% against the dollar, heading for its steepest daily loss since the Hamas attack of October 2023. 'The Israeli strike on Iran's nuclear facilities has sent oil prices spiking and has offered the oversold and undervalued dollar a catalyst for a rebound,' said Francesco Pesole, currency strategist at ING. While there are currently no confirmed disruptions to oil production, analysts warn that the situation could escalate rapidly. 'The key difference from previous standoffs is that nuclear facilities have now been targeted,' Pesole added. Warren Patterson, head of commodities research at ING, noted: 'In a scenario where we see continued escalation, there's the potential for disruptions to shipping through the Strait of Hormuz. Almost a third of global seaborne oil trade moves through that route.' He warned that up to 14 million barrels per day could be at risk, with oil potentially surging to $120 per barrel in the event of a prolonged disruption — levels not seen since 2008.
