Investors brace themselves for oil price spike, rush to havens after US bombs Iran nuclear sites

NEW YORK –

A US attack on Iranian nuclear sites on June 21

could lead to a knee-jerk reaction in global markets when they reopen, sending oil prices higher and triggering a rush to safety, investors said, as they assessed how the latest escalation of tensions would ripple through the global economy.

The attack, which was announced by President Donald Trump on his Truth Social platform, deepens US involvement in the Middle East conflict. That was the question going into the weekend, when investors were mulling over 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 begins, but also said much uncertainty about the course of the conflict remained.

Mr Trump called the attack “a spectacular military success” in a televised address to the nation, and said Iran’s “key nuclear enrichment facilities have been completely and totally obliterated”.

He said the US military could go after other targets in Iran if the country did not agree to peace.

“I think the markets are going to be initially alarmed, and I think oil will open higher,” said Mr Mark Spindel, chief investment officer at Potomac River Capital.

He added: “We don’t have any damage assessment, and that will take some time. Even though he (Trump) has described this as ‘done’, we’re engaged. What comes next?

“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.”

But Mr Spindel said there was time to digest the news before markets open and that he was making arrangements to talk to other market participants.

Oil prices, inflation

A key concern for markets would centre on 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 interest rate cuts.

“This adds a complicated new layer of risk that we’ll have to consider and pay attention to,” said Mr 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 a near five-month high of US$79.04 on June 19, 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, 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 around US$130 per barrel, driving US inflation near 6 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, which was published before the US strikes.

In comments after the announcement on June 21, Mr Jamie Cox, managing partner at Harris Financial Group, agreed that oil prices would likely spike on the initial news.

But he said he expected prices to likely level in a few days, as the attacks could lead Iran to seek a peace deal with Israel and the US.

“With this demonstration of force and total annihilation of its nuclear capabilities, they’ve lost all of their leverage and will likely hit the escape button to a peace deal,” he said.

Economists warn that a dramatic rise in oil prices could damage a global economy already strained by Mr Trump’s tariffs.

Still, any pullback in equities might be fleeting, history suggests.

During past prominent instances of Middle East tensions coming to a boil, including the 2003 Iraq invasion and the 2019 attacks on Saudi oil facilities, stocks initially languished but soon recovered to trade higher in the months ahead.

On average, the S&P 500 slipped 0.3 per cent in the three weeks following the start of conflict, but was 2.3 per cent higher on average two months following the conflict, according to data from Wedbush Securities and CapIQ Pro.

Dollar woes

An escalation in the conflict could have mixed implications for the US dollar, which has tumbled in 2025 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 Mr 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.” REUTERS