Oil markets reacted sharply after the Israeli military reported that Iran had fired missiles at Israel. Air raid sirens sounded across the country, with residents urged to stay near bomb shelters. The Israeli government had warned earlier of severe consequences if Iran escalated its involvement in the conflict.
The missile attacks followed a day of rocket fire from Lebanon and limited Israeli ground operations in southern Lebanon. The heightened tensions have raised concerns about broader Middle East instability, with potential implications for global energy supplies.
Crude oil prices surged on the news. West Texas Intermediate (WTI) jumped 5%, surpassing $71 per barrel after an earlier dip of 2.7%. Brent crude, the global benchmark, climbed above $75 a barrel. The involvement of Iran, an OPEC member and key player in the region, heightened fears of oil supply disruptions from an area that supplies nearly a third of the world’s crude.
"Middle East tensions clearly have markets on edge," said Callie Cox, chief market strategist at Ritholtz Wealth Management. "Oil prices are up, bonds are up, gold is up, stocks are down. That’s the classic geopolitical reaction."
Despite recent escalations, oil flows from the region have not been significantly affected, but analysts are wary of further disruptions. “The oil market is highly sensitive to geopolitical risks in this region, and any disruption could lead to higher energy prices,” said David Lin, CEO of Linvest21.AI.
Bonds and gold rose as investors shifted to safer assets after Iran's action. A report that the U.S. is preparing to support Israel in defending against the attack further boosted haven assets. Gold neared $2,670 an ounce, the dollar strengthened, and oil prices surged.
Tech stocks led the decline, with Apple Inc. and Nvidia Corp. dropping over 3%. The Nasdaq 100 lost 1.9%, while the S&P 500 fell by 1%.
Economic data presented mixed signals. The US ISM price index saw its biggest drop since May 2023, but US job openings in August reached a three-month high, conflicting with other indicators suggesting slowing demand for workers. Treasury yields fell, with the 10-year note hovering around 3.71%.
“Today’s reports should pressure the 10-year yield, dollar, and employment service stocks, but Friday’s payroll release will carry more weight,” said Stan Shipley of Evercore ISI. “However, geopolitical events in the Middle East are more critical for Treasury markets.”
Meanwhile, traders are closely monitoring the impact of a longshoremen strike at major U.S. container ports. JPMorgan Chase & Co. estimates the stoppage is costing $3.8 billion to $4.5 billion per day.
Wall Street’s volatility index, the VIX, surged, signaling increased market turbulence ahead.