Oil traders brace for turmoil as Iran crisis imperils supply
Israeli strikes on Iranian energy infrastructure are spooking markets as investors become increasingly concerned that a longer-term oil price spike will fuel inflation and derail hopes of interest rate cuts.
Israel attacked South Pars, the world's largest gas field, at the weekend, causing production to be partially suspended. In later attacks, Israel struck Tehran's main gas depot and one of the country's largest oil refineries in separate parts of the capital. Iran is the third-biggest producer in the Organisation of the Petroleum Exporting Countries.
The targeting of energy assets represents a new front in the conflict, which erupted on Friday when Israel launched a wave of missiles at the Islamic Republic's nuclear program. Oil prices in the United States surged as much as 14 per cent, before settling 7.5 per cent higher at $US73 a barrel.
But traders are bracing for more wild swings when oil market trading resumes on Monday, particularly after Iranian military officials said Tehran was considering closing the Strait of Hormuz – a key shipping route that connects the Persian Gulf and the Gulf of Oman. Crude oil futures posted their biggest single-day increase in more than three years on Friday.
'A significant disruption to these flows would be enough to push prices to $US120 a barrel,' warned ING's head of commodity strategy Warren Patterson. 'Higher oil prices clearly reduce the chances of the Federal Reserve cutting rates in the third quarter.'
The escalation in the Middle East took place in the same week that US inflation data for May came in lower than expected, and as officials in Washington and Beijing appeared to be closing on a deal to avert the worst of the trade tariffs threatened earlier this year.
The positive sentiment pushed the ASX to a fresh record last week, while US equities traded just 1.6 per cent shy of its all-time high.
But Israel's strike on Iran triggered an abrupt reversal on Friday, dragging the S&P 500 down 1.1 per cent as investors fled to the safety of gold, which lifted prices of the precious metal back near all-time highs.
Wall Street's 'fear gauge' – the VIX Index – topped 20, a level that indicates a divide of calm and nervousness in financial markets.
The local sharemarket is expected to follow Wall Street lower, with futures indicating the S&P/ASX 200 will drop 0.2 per cent, or 20 points, to 8532 at the open on Monday.
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The Advertiser
2 hours ago
- The Advertiser
Investors brace for oil price spike after Iran attack
The US attack on Iranian nuclear sites could lead to a knee-jerk reaction in global markets when they reopen, sending oil prices higher and triggering a rush to safety, investors say as they assess how the latest escalation of tensions will ripple through the global economy. The attack, announced by President Donald Trump on social media site Truth Social, deepens US involvement in the Middle East conflict. That was the question going into the weekend, when investors were mulling a host of different market scenarios. In the immediate aftermath of the announcement, they expected the US involvement was likely to cause a sell-off in equities and a possible bid for the dollar and other safe-haven assets when trading began, but also said much uncertainty about the course of the conflict remained. "I think the markets are going to be initially alarmed, and I think oil will open higher," said Mark Spindel, chief investment officer at Potomac River Capital. "We don't have any damage assessment and that will take some time. "Even though he has described this as 'done', we're engaged. What comes next?" Spindel said. "I think the uncertainty is going to blanket the markets, as now Americans everywhere are going to be exposed. It's going to raise uncertainty and volatility, particularly in oil." Spindel, however, said there was time to digest the news before markets opened. A key concern for markets would centre around the potential impact of the developments in the Middle East on oil prices and thus on inflation. A rise in inflation could dampen consumer confidence and lessen the chance of near-term US interest rate cuts. "This adds a complicated new layer of risk that we'll have to consider and pay attention to," said Jack Ablin, chief investment officer of Cresset Capital. "This is definitely going to have an impact on energy prices and potentially on inflation as well." While global benchmark Brent crude futures have risen as much as 18 per cent since June 10, hitting an almost five-month high of $US79.04 ($A121.82) on Thursday, the S&P 500 has been little changed, following an initial drop when Israel launched its attacks on Iran on June 13. Before the US attack on Saturday, analysts at Oxford Economics modelled three scenarios, including a de-escalation of the conflict, a complete shutdown in Iranian oil production and a closure of the Strait of Hormuz, "each with increasingly large impacts on global oil prices". In the most severe case, global oil prices jump to about $US130 ($A200) per barrel, driving US inflation close to six per cent by the end of 2025, Oxford said in the note. "Although the price shock inevitably dampens consumer spending because of the hit to real incomes, the scale of the rise in inflation and concerns about the potential for second-round inflation effects likely ruin any chance of rate cuts in the US this year," Oxford said in the note, published before the US strikes. Economists warn a dramatic rise in oil prices could damage a global economy already strained by Trump's tariffs. An escalation in the conflict could have mixed implications for the US dollar, which has tumbled amid worries over diminished US exceptionalism. In the event of US direct engagement in the Iran-Israel war, the dollar could initially benefit from a safety bid, analysts said. "Do we see a flight to safety? That would signal yields going lower and the dollar getting stronger," said Steve Sosnick, chief market strategist at IBKR in Greenwich, Connecticut. "It's hard to imagine stocks not reacting negatively and the question is how much. It will depend on Iranian reaction and whether oil prices spike." The US attack on Iranian nuclear sites could lead to a knee-jerk reaction in global markets when they reopen, sending oil prices higher and triggering a rush to safety, investors say as they assess how the latest escalation of tensions will ripple through the global economy. The attack, announced by President Donald Trump on social media site Truth Social, deepens US involvement in the Middle East conflict. That was the question going into the weekend, when investors were mulling a host of different market scenarios. In the immediate aftermath of the announcement, they expected the US involvement was likely to cause a sell-off in equities and a possible bid for the dollar and other safe-haven assets when trading began, but also said much uncertainty about the course of the conflict remained. "I think the markets are going to be initially alarmed, and I think oil will open higher," said Mark Spindel, chief investment officer at Potomac River Capital. "We don't have any damage assessment and that will take some time. "Even though he has described this as 'done', we're engaged. What comes next?" Spindel said. "I think the uncertainty is going to blanket the markets, as now Americans everywhere are going to be exposed. It's going to raise uncertainty and volatility, particularly in oil." Spindel, however, said there was time to digest the news before markets opened. A key concern for markets would centre around the potential impact of the developments in the Middle East on oil prices and thus on inflation. A rise in inflation could dampen consumer confidence and lessen the chance of near-term US interest rate cuts. "This adds a complicated new layer of risk that we'll have to consider and pay attention to," said Jack Ablin, chief investment officer of Cresset Capital. "This is definitely going to have an impact on energy prices and potentially on inflation as well." While global benchmark Brent crude futures have risen as much as 18 per cent since June 10, hitting an almost five-month high of $US79.04 ($A121.82) on Thursday, the S&P 500 has been little changed, following an initial drop when Israel launched its attacks on Iran on June 13. Before the US attack on Saturday, analysts at Oxford Economics modelled three scenarios, including a de-escalation of the conflict, a complete shutdown in Iranian oil production and a closure of the Strait of Hormuz, "each with increasingly large impacts on global oil prices". In the most severe case, global oil prices jump to about $US130 ($A200) per barrel, driving US inflation close to six per cent by the end of 2025, Oxford said in the note. "Although the price shock inevitably dampens consumer spending because of the hit to real incomes, the scale of the rise in inflation and concerns about the potential for second-round inflation effects likely ruin any chance of rate cuts in the US this year," Oxford said in the note, published before the US strikes. Economists warn a dramatic rise in oil prices could damage a global economy already strained by Trump's tariffs. An escalation in the conflict could have mixed implications for the US dollar, which has tumbled amid worries over diminished US exceptionalism. In the event of US direct engagement in the Iran-Israel war, the dollar could initially benefit from a safety bid, analysts said. "Do we see a flight to safety? That would signal yields going lower and the dollar getting stronger," said Steve Sosnick, chief market strategist at IBKR in Greenwich, Connecticut. "It's hard to imagine stocks not reacting negatively and the question is how much. It will depend on Iranian reaction and whether oil prices spike." The US attack on Iranian nuclear sites could lead to a knee-jerk reaction in global markets when they reopen, sending oil prices higher and triggering a rush to safety, investors say as they assess how the latest escalation of tensions will ripple through the global economy. The attack, announced by President Donald Trump on social media site Truth Social, deepens US involvement in the Middle East conflict. That was the question going into the weekend, when investors were mulling a host of different market scenarios. In the immediate aftermath of the announcement, they expected the US involvement was likely to cause a sell-off in equities and a possible bid for the dollar and other safe-haven assets when trading began, but also said much uncertainty about the course of the conflict remained. "I think the markets are going to be initially alarmed, and I think oil will open higher," said Mark Spindel, chief investment officer at Potomac River Capital. "We don't have any damage assessment and that will take some time. "Even though he has described this as 'done', we're engaged. What comes next?" Spindel said. "I think the uncertainty is going to blanket the markets, as now Americans everywhere are going to be exposed. It's going to raise uncertainty and volatility, particularly in oil." Spindel, however, said there was time to digest the news before markets opened. A key concern for markets would centre around the potential impact of the developments in the Middle East on oil prices and thus on inflation. A rise in inflation could dampen consumer confidence and lessen the chance of near-term US interest rate cuts. "This adds a complicated new layer of risk that we'll have to consider and pay attention to," said Jack Ablin, chief investment officer of Cresset Capital. "This is definitely going to have an impact on energy prices and potentially on inflation as well." While global benchmark Brent crude futures have risen as much as 18 per cent since June 10, hitting an almost five-month high of $US79.04 ($A121.82) on Thursday, the S&P 500 has been little changed, following an initial drop when Israel launched its attacks on Iran on June 13. Before the US attack on Saturday, analysts at Oxford Economics modelled three scenarios, including a de-escalation of the conflict, a complete shutdown in Iranian oil production and a closure of the Strait of Hormuz, "each with increasingly large impacts on global oil prices". In the most severe case, global oil prices jump to about $US130 ($A200) per barrel, driving US inflation close to six per cent by the end of 2025, Oxford said in the note. "Although the price shock inevitably dampens consumer spending because of the hit to real incomes, the scale of the rise in inflation and concerns about the potential for second-round inflation effects likely ruin any chance of rate cuts in the US this year," Oxford said in the note, published before the US strikes. Economists warn a dramatic rise in oil prices could damage a global economy already strained by Trump's tariffs. An escalation in the conflict could have mixed implications for the US dollar, which has tumbled amid worries over diminished US exceptionalism. In the event of US direct engagement in the Iran-Israel war, the dollar could initially benefit from a safety bid, analysts said. "Do we see a flight to safety? That would signal yields going lower and the dollar getting stronger," said Steve Sosnick, chief market strategist at IBKR in Greenwich, Connecticut. "It's hard to imagine stocks not reacting negatively and the question is how much. It will depend on Iranian reaction and whether oil prices spike." The US attack on Iranian nuclear sites could lead to a knee-jerk reaction in global markets when they reopen, sending oil prices higher and triggering a rush to safety, investors say as they assess how the latest escalation of tensions will ripple through the global economy. The attack, announced by President Donald Trump on social media site Truth Social, deepens US involvement in the Middle East conflict. That was the question going into the weekend, when investors were mulling a host of different market scenarios. In the immediate aftermath of the announcement, they expected the US involvement was likely to cause a sell-off in equities and a possible bid for the dollar and other safe-haven assets when trading began, but also said much uncertainty about the course of the conflict remained. "I think the markets are going to be initially alarmed, and I think oil will open higher," said Mark Spindel, chief investment officer at Potomac River Capital. "We don't have any damage assessment and that will take some time. "Even though he has described this as 'done', we're engaged. What comes next?" Spindel said. "I think the uncertainty is going to blanket the markets, as now Americans everywhere are going to be exposed. It's going to raise uncertainty and volatility, particularly in oil." Spindel, however, said there was time to digest the news before markets opened. A key concern for markets would centre around the potential impact of the developments in the Middle East on oil prices and thus on inflation. A rise in inflation could dampen consumer confidence and lessen the chance of near-term US interest rate cuts. "This adds a complicated new layer of risk that we'll have to consider and pay attention to," said Jack Ablin, chief investment officer of Cresset Capital. "This is definitely going to have an impact on energy prices and potentially on inflation as well." While global benchmark Brent crude futures have risen as much as 18 per cent since June 10, hitting an almost five-month high of $US79.04 ($A121.82) on Thursday, the S&P 500 has been little changed, following an initial drop when Israel launched its attacks on Iran on June 13. Before the US attack on Saturday, analysts at Oxford Economics modelled three scenarios, including a de-escalation of the conflict, a complete shutdown in Iranian oil production and a closure of the Strait of Hormuz, "each with increasingly large impacts on global oil prices". In the most severe case, global oil prices jump to about $US130 ($A200) per barrel, driving US inflation close to six per cent by the end of 2025, Oxford said in the note. "Although the price shock inevitably dampens consumer spending because of the hit to real incomes, the scale of the rise in inflation and concerns about the potential for second-round inflation effects likely ruin any chance of rate cuts in the US this year," Oxford said in the note, published before the US strikes. Economists warn a dramatic rise in oil prices could damage a global economy already strained by Trump's tariffs. An escalation in the conflict could have mixed implications for the US dollar, which has tumbled amid worries over diminished US exceptionalism. In the event of US direct engagement in the Iran-Israel war, the dollar could initially benefit from a safety bid, analysts said. "Do we see a flight to safety? That would signal yields going lower and the dollar getting stronger," said Steve Sosnick, chief market strategist at IBKR in Greenwich, Connecticut. "It's hard to imagine stocks not reacting negatively and the question is how much. It will depend on Iranian reaction and whether oil prices spike."
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Virgin float has Bain in line for $15.9m advisory golden parachute
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US President Donald Trump's decision to join the Israeli attacks on Iran on Sunday represents a wild card that many investors didn't expect, and certainly are not positioned for. This will rattle markets, and the scale of the damage depends almost entirely on Iran's next move, not America's. As we've argued consistently in the past week, investors were heavily leveraged to three TACO trades: that the tariff war was over, that Trump's threats against Federal Reserve chairman Jerome Powell were hot air, and that the United States wouldn't risk expanding the conflict with Iran.
