US Israel economic impact: Oil surges 4% and gold hits record as conflict spreads

By James Okafor | GlobalBeat

Brent crude vaulted 4 percent to $90 a barrel on Monday and spot gold touched a record $2,448 an ounce after Israeli munitions destroyed Iran’s diplomatic compound in Damascus.

The strike killed 7 officers including Brig. Gen. Mohammad Reza Zahedi, a senior commander of the Islamic Revolutionary Guard Corps’ Quds Force, Iran’s defence ministry confirmed.

Traders priced in the highest probability of a regional supply disruption since the Oct. 7 Hamas assault on Israel, pushing the Bloomberg commodity index to a 19-month high.

Oil markets erased last week’s 3 percent decline within 90 minutes of the pre-dawn raid, while copper, wheat and natural-gas contracts joined the rally, exchange data showed.

“Geopolitical risk is back at the top of the board,” Warren Patterson, head of commodities strategy at ING Groep, told clients in a note.

Gold’s 1.8 percent leap extended this year’s advance to 14 percent, outperforming the S&P 500 by 9 percentage points, according to FactSet.

Israel’s shekel weakened 1.1 percent to 3.73 per dollar, its lowest since November, before the central bank sold an undisclosed amount of foreign currency to steady the exchange rate, the Bank of Israel said.

Tel Aviv’s TA-35 equity index fell 1.4 percent, led by banks and insurers, while the country’s 2060 dollar bond yield climbed 8 basis points to 5.42 percent, Tradeweb data showed.

Iran’s rial dropped 0.7 percent to 610,000 per dollar on the unofficial market, according to Bonbast.com, a website that tracks street rates.

European natural-gas futures jumped 6 percent as traders factored in the risk that Iran could disrupt shipments through the Strait of Hormuz, through which a fifth of global supply sails, the Intercontinental Exchange said.

“Any closure of Hormuz would send Brent toward $100 within days,” Giovanni Staunovo, commodity analyst at UBS, told reporters via video call.

The Pentagon ordered the USS Eisenhower carrier strike group to remain in the region beyond its scheduled departure, a senior U.S. defense official said, speaking on condition of anonymity.

Background

Israel and Iran have fought a shadow war for decades, but direct strikes on state facilities have been rare since the 1980s. Tehran supplies arms and funds to Hamas, Hezbollah and the Houthis, all of which have attacked Israeli or U.S. targets since Oct. 7.

The United States has imposed sanctions on Iran’s oil exports since 2018, cutting shipments to around 1 million barrels a day from 2.8 million, according to the International Energy Agency. China remains the largest buyer, taking more than 80 percent of the volume, customs data show.

What’s Next

Iran’s Supreme National Security Council meets on Tuesday to weigh retaliation options, state television reported, while the U.S. Senate plans a closed briefing on Wednesday with Defense Secretary Lloyd Austin and CIA Director William Burns.

The clash has already reshaped capital flows. Investors will watch whether the Federal Reserve flags Middle-East risk at its 2 May meeting and if European Union foreign ministers agree on fresh Iran penalties when they gather 18 May in Brussels.