Middle East tensions spark market jitters and safe-haven surge

Global financial markets turned risk-averse on Friday following Israel’s surprise military operation targeting Iran’s nuclear facilities. The escalation prompted a sharp surge in crude oil and gold, declines in equities, and a broad rotation into safe-haven assets. Investors are recalibrating their portfolios as the likelihood of broader regional conflict increases, with Iran already retaliating and threatening further responses. The ripple effects of this geopolitical shock were felt across commodities, equities, currencies, and bonds.

Oil soars as Middle East conflict escalates

Crude oil prices experienced their largest intraday spike in over three years after Israel launched airstrikes on Iranian nuclear and missile infrastructure. Brent crude surged by as much as 13% before stabilizing with a 5.6% gain, closing at $73.24 per barrel. Concerns that the conflict could escalate further — potentially disrupting key oil shipping routes or drawing in broader regional actors — fueled this dramatic move.

• Israel confirmed that it would continue operations until the Iranian “threat” is neutralized.
• Iran retaliated by launching more than 100 drones toward Israel.
• The oil futures curve steepened on fears of sustained supply disruptions.

Gold climbs on flight to safety

Gold extended a multi-day rally, supported by geopolitical uncertainty and haven demand. Prices rose 0.9% in early London trading, reaching $3,416.21 per ounce — just $90 below April’s record high. Investors also cited lingering concerns about inflation and global central bank responses as contributing factors behind the bid for gold.

• Key drivers include threats to US military bases, ongoing conflict in Ukraine, and aggressive global trade policies.
• Central bank demand and institutional accumulation have underpinned this year’s 30% rally in gold.

Equities slide globally as risk-off takes hold

Stock markets pulled back sharply as traders rotated out of risk assets. The S&P 500 futures dropped 1.3%, while Nasdaq 100 and Dow Jones futures fell 1.4% and 1.2%, respectively. European indices were down 1.1%, and Asian equities posted their steepest decline in two months.

• The Stoxx Europe 600 index declined 1.1%.
• The MSCI Asia Pacific Index fell 1%.
• The MSCI Emerging Markets Index was down 1%.

Investors viewed the geopolitical escalation as a trigger for profit-taking after a recent run-up in global equities.

Bonds and dollar show classic haven patterns

The fixed income market reflected a classic risk-off sentiment. US Treasuries advanced, with 10-year yields falling by 2 basis points to 4.34%. Germany’s Bunds also saw gains, with the 10-year yield easing to 2.47%.

• The US Dollar Index rebounded by 0.3%, recovering from a three-year low, reflecting demand for liquidity and safe-haven currencies.
• The Israeli shekel weakened 3.4% against the dollar, hitting its lowest since April.

Crypto under pressure

Cryptocurrencies faced selling pressure amid broader market risk aversion:

• Bitcoin fell 1.3% to $104,623
• Ethereum declined more sharply by 4.3%, dropping to $2,526

While digital assets often serve as alternatives to fiat currencies, heightened geopolitical stress prompted liquidity exits across volatile instruments.

Broader market sentiment and outlook

Investors are now watching closely to assess:

• The extent of Iran’s retaliation and whether further escalation draws in other regional or global powers.
• Potential implications on nuclear negotiations, previously scheduled between Iran and the US.
• Longer-term inflationary risks, particularly if oil remains elevated.

Central banks may be forced to reassess their policy trajectories if energy shocks seep into broader price pressures. Until clarity emerges, market volatility is expected to remain elevated.

A risk-off reset

The Israeli-Iranian conflict introduces a new layer of uncertainty to an already fragile global backdrop. With economic data softening, monetary policy paths diverging, and trade tensions unresolved, geopolitical instability is now a major determinant of asset allocation. While temporary pullbacks may offer tactical opportunities, capital preservation and exposure to defensive sectors remain prudent in the current environment.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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