Oil Prices Surge Amid Fears of Escalating Middle East Conflict; Major Stock Markets Retreat

TDT | Manama

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Oil prices surged while major stock markets mostly retreated yesterday as investors reacted to fears of a widening conflict in the Middle East. Prices spiked following comments from U.S. President Joe Biden, who indicated discussions were underway regarding potential Israeli strikes on Iranian oil facilities in retaliation for Tehran's recent missile attacks on Israel.

Brent crude, the international benchmark, reached over $77 per barrel, while U.S. West Texas Intermediate (WTI) approached $74, both experiencing gains of more than five percent before settling down slightly.

In New York, the Dow Jones Industrial Average and the broad-based S&P 500 closed lower, though the tech-heavy Nasdaq saw an increase. European markets also finished in the red, with London, Paris, and Frankfurt all recording losses. Investor sentiment was further influenced by a strike among U.S. dockworkers and speculation about the U.S. Federal Reserve's upcoming interest rate decisions, especially with a key employment report set to be released on Friday.

The dollar strengthened, benefiting from its status as a haven, while the British pound fell more than one percent against the dollar after Bank of England Governor Andrew Bailey hinted at potential cuts to UK borrowing costs.

In Asia, Tokyo's stock market rose by two percent, buoyed by a weaker yen, which helped support the country’s exporters. Conversely, Hong Kong's market fell for the first time in over a week following a significant rally fueled by China's aggressive measures to stimulate its sluggish economy.

Iran's missile attacks on Israel this week have heightened concerns that Israel's conflict with Tehran-backed militant groups in Gaza and Lebanon may escalate into a broader regional war. Independent market analyst Stephen Innes noted, "Markets are in a state of suspense, bracing for Israel’s anticipated retaliation against Iran — a move that could catapult oil prices skyward."

Iran, which supports the Lebanese militant group Hezbollah, has warned it would intensify its response if Israel strikes back, ignoring calls for de-escalation in a conflict that has already claimed over 1,000 lives in Lebanon. Israel's military reported yesterday that it had targeted Hezbollah's intelligence headquarters in Beirut while engaging militants near the border and conducting airstrikes on their positions throughout Lebanon.

Analysts caution, however, that oil price gains may be limited as U.S. stockpiles increased more than expected last week. Additionally, Libya's eastern administration announced the end of a month-long production and export blockade. Meanwhile, the Saudi-led OPEC+ oil cartel plans to increase production starting in December, further alleviating supply concerns.

As investors look ahead, attention will turn to the crucial U.S. non-farm payroll jobs report on Friday, which could offer insights into the Federal Reserve’s interest rate strategy following last month’s first cut in four years. Recent data released on Wednesday indicated a surprising uptick in U.S. private sector hiring for September. Fawad Razaqzada, a market analyst at City Index and Forex.com, emphasized, “Friday’s official payroll report will be critical, especially as markets weigh geopolitical risks against the domestic economy’s performance.”