Israel’s military strikes against Iran shook global markets on Friday.
Oil prices surged and stocks tumbled on worries that the attacks could set off a broader Middle East conflict that would disrupt the world’s energy supplies and stoke inflation.
Stock markets fell broadly across Asia and Europe. The S&P 500 fell as much as 1.2 percent Friday morning before moderating to trade just 0.4 percent lower for the day. Energy and defense stocks rose.
Geopolitical shocks like these tend to have a fleeting impact on financial markets, once investors are confident that the knock on effects are minimal for the stocks they hold. However, a sustained disruption to the flow of oil out of the Middle East could have a more severe impact, raising energy prices for companies and consumers at a time when resurgent inflation is already a concern.
The price of Brent crude oil, the international benchmark, jumped almost 6 percent on Friday, to above $73 a barrel. The move was on course to be oil’s largest daily gain this year, and capped a choppy week of trading. West Texas Intermediate crude, the U.S. benchmark, also rose 6 percent to $72.10.
Investors seeking a safe place to put their money bid up the price of gold. The yield on the 10-year U.S. Treasury note, which moves inversely to prices and typically falls during periods of stress, rose. Investors also pushed back their bets on when the Federal Reserve would next cut interest rates.
Iran is among the world’s largest producers of oil, and it sells almost all of what it produces to China, which consumes 15 percent of global supply. Sales by Iran’s state oil company to China represent about 6 percent of Iran’s entire economy, and are equal to about half its entire government’s spending.
Iran’s exports have lagged in recent years as international sanctions have limited its ability to modernize its oil extraction and transportation technology.
But Iran’s shipments have begun to recover in the past year on strong demand from China, which would be forced buy oil elsewhere if a broader conflict were to interrupt Iranian supplies.
Iran holds a strategic position over other Mideast oil producers. Its control of the northern side of the Strait of Hormuz, at the exit of the Persian Gulf, means Iran could block oil and natural gas exports in retaliation to the Israeli strike. About one-third of the world’s seaborne oil shipments pass through the strait.
Meghan L. O’Sullivan, a former U.S. deputy national security adviser specializing in the Mideast, said the United States military had the ability to force a reopening of the Strait of Hormuz, but that could create bigger issues.
“Such action would bring America squarely into the conflict, moving it to greater levels of regional disruption and global uncertainty,” said Ms. O’Sullivan, who is the director of the Belfer Center for Science and International Affairs at Harvard.
In any case, Iran has strong financial reasons not to close the Strait of Hormuz: Nearly all of its oil exports must pass through it. And much of the oil imported by China is shipped through the strait.
“If I were Iran, I would think twice before closing the Strait of Hormuz,” said Muyu Xu, senior Asia oil analyst at Kpler, a global commodities and shipping data firm. “If they choke the Strait of Hormuz, they cannot move barrels out.”
The United States has in recent years become far less dependent on oil from the Persian Gulf, because of the rise of fracking and other advanced techniques to extract oil. Europe, along with China, import large quantities of oil from the region.
Iran has long had tense relations with Saudi Arabia, which tilts toward the United States, an ally of Israel. In 2019, Iran and its proxies used drone strikes to destroy oil facilities in Saudi territory.
Saudi Arabia, the third-largest producer of oil after the United States and Russia, has a backup plan in case of a wider conflict. It has built an extensive pipeline system leading south from the coast of the Persian Gulf, where it produces most of its oil, to the Red Sea, where oil could be loaded onto tankers.
“It’s hard to see what comes next, but the oil market isn’t yet pricing in a catastrophic scenario,” which would include the disruption of oil and gas supplies through the Strait of Hormuz, said Justin Alexander, director of Khalij Economics, a research and consulting firm focused on the Gulf.
In the worst case, estimates suggest “something like a doubling of the oil price,” he added. But if only Iran’s oil and gas supplies are disrupted, then spare capacity from the OPEC Plus group of countries, already in the process of ratcheting up production, could make up the difference and limit the potential rise in prices.
Jason Karaian contributed reporting from London.
Keith Bradsher is the Beijing bureau chief for The Times. He previously served as bureau chief in Shanghai, Hong Kong and Detroit and as a Washington correspondent. He has lived and reported in mainland China through the pandemic.
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