Oil prices jumped and US stock futures sold off after Iran attacked two Iraqi military bases housing American troops in retaliation for Washington’s assassination of Qassem Soleimani last week.
In early Asia trading on Wednesday, the price of Brent crude, the international oil marker, gained 3.8 per cent to $70.84 a barrel, while West Texas Intermediate crude oil, the US marker, rose 4.5 per cent to $65.51 a barrel. The S&P 500 equity futures dropped 1.6 per cent.
Markets across the region were roiled after Tehran’s Revolutionary Guard said it fired “tens of rockets” at bases including Iraq’s Ain Assad base, which hosts US troops, as retribution for the killing of Soleimani last week. Soleimani was the head of the Guard’s Quds force, which is responsible for Iran’s overseas military operations.
Wednesday’s attack, which was quickly confirmed by the Pentagon, marks a significant escalation in the confrontation between Iran and the US. There were no immediate details on casualties.
Mohamed El-Erian, chief economic adviser to Allianz, said: “Look for an immediate risk-off market reaction to this latest escalation of the Iran-US conflict. The market focus now shifts to the severity and timing of the US response.”
In a statement, Iran’s elite Revolutionary Guard warned “the great Satan and arrogant US that any aggressive act will be responded with more painful and more crushing retaliation”.
Investors sought safer segments of the markets in response to the news. The price of gold, seen as a haven during times of uncertainty, climbed 2.2 per cent to $1,608.18 per troy ounce, taking the yellow metal to a near-seven-year high.
The yield on 10-year US treasuries fell 9 basis points to a one-month low of 1.7239 per cent, while the Japanese yen, another haven, strengthened 0.7 per cent to ¥107.68 per dollar.
As Japan’s currency rose, the Topix stock index shed 2.2 per cent shortly after they opened, putting it on course for its biggest one-day fall since early August.
Australia’s S&P/ASX 200 fell 1.1 per cent and South Korea’s Kospi dropped 1.5 per cent. Chinese and Hong Kong markets were not yet open for trading.
“In recent days many market participants had grown complacent about the very real risk of Iranian reprisals. That complacency was clearly misplaced,” said Helima Croft, a former CIA analyst who leads commodities strategy at RBC Capital Markets.
“The Iranians seem intent on showing that they will back words with action.”
Additional reporting by Andrew England, Jennifer Ablan and David Sheppard