Oil prices jump 7% and stocks drop as Israel-Iran tensions escalate
By John Liu, Matt Egan and John Towfighi, CNN
Hong Kong/New York (CNN) — Oil prices surged, stocks dropped and investors flocked to safe havens like gold on Friday after tensions between Israel and Iran escalated, stoking concerns of a broader conflict in the region.
The price of oil surged Friday in the market’s largest single-day increase in years after Israel attacked Iran, reflecting fears that a wider conflict in the Middle East could lead to serious energy supply disruptions.
US oil surged 7.26%, settling at roughly $72.98 per barrel Friday. Brent gained 7%, settling at around $74.23 per barrel. US oil and Brent had surged as much as 14% and 13%, respectively, earlier in the day.
Those were the biggest single-day gains for the oil benchmarks since March 2022, weeks after Russia launched its full-scale invasion of Ukraine. The oil benchmarks also posted their biggest weekly gains since October 2022.
The surge illustrates “both immediate supply concerns and a growing sense that negative headlines could extend the timeline for escalation unlike the prior Israel-Iran episode,” Ahmad Assiri, research strategist at Pepperstone, a financial services firm, wrote in a research note.
Meanwhile, US stocks fell, sending investors retreating to traditional safe haven investments like gold, which rose about 1.4% to $3,433 per troy ounce. The US dollar slightly strengthened.
The Dow closed lower by 770 points, or 1.79%, on Friday after Iran said it had retaliated. The S&P 500 had dropped 1.13% and the tech-heavy Nasdaq Composite slid 1.3%.
The S&P 500, which had been hovering near an all-time high, closed the week in the red and snapped a two-week winning streak.
Stocks turned sharply lower after reports that Iran has fired “hundreds of various ballistic missiles” towards Israel, in what it called the “beginning” of its “crushing response” to Israeli attacks on the country on Friday morning.
“Moments ago, with the launch of hundreds of various ballistic missiles toward the occupied territories, the operation of decisive response to the savage attack of the Zionist regime has begun,” Iran’s official news agency, IRNA, reported.
Wall Street’s fear gauge, the CBOE Volatility Index, surged 19%.
Israel-Iran turmoil roils markets
Shares in airlines and travel companies fell on Friday amid the turmoil in the Middle East.
Early on Friday, Israel launched an unprecedented attack against Iran’s nuclear and missile facilities, killing at least two of Iran’s top military commanders. Israeli Prime Minister Benjamin Netanyahu said in a televised address that the “targeted military operation” is expected to continue for “many days.”
“This operation will continue for as many days as it takes to remove this threat,” Netanyahu said.
A state of emergency had been declared in Israel in anticipation of an Iranian retaliation, which appears to have begun. Iran’s Supreme Leader Ayatollah Ali Khamenei said Israel will face “severe punishment” for the attacks.
Secretary of State Marco Rubio said the US was not involved in the Israeli operation and warned Iran against targeting US interests or personnel.
President Donald Trump told The Wall Street Journal on Friday that Israel’s attacks on Iran are “great for the market” because it means Iran won’t have a nuclear weapon.
“I think ultimately, it would be great for the market because Iran will not have a nuclear weapon. It will be great for the market — should be the greatest thing ever for the market. Iran won’t have a nuclear weapon that was a great threat to humanity,” he told the newspaper in a phone call.
Oil prices spike higher
Investors are concerned about how a retaliation by Iran may play out, whether the US may be targeted and whether a critical oil transport route may be disrupted.
If the conflict eliminates Iranian oil from the market, oil prices could spike by about $7.50 a barrel, according to Andy Lipow, president of Lipow Oil Associates, a consulting firm.
“Iran knows full well that Trump is focused on lower energy prices and actions by Iran that impact Middle East supply and consequently raise oil prices damage Trump politically,” he said.
The bigger fear now is an even broader conflict that impacts the flow of oil from the Strait of Hormuz, the most critical chokepoint for oil supplies on the planet.
“Should oil exports through the Strait of Hormuz be affected, we could see $100 oil,” Lipow said.
OPEC on Friday pushed back on suggestions that surging oil prices after Israel’s attack on Iran could require the release of emergency oil stockpiles.
OPEC’s secretary general said in a statement on X that there are “currently no developments in supply or market dynamics that warrant unnecessary measures.”
Bob McNally, president of Rapidan Energy Group, told CNN that the OPEC statement is “consistent with their posture, which is to hunker down, lay low and hope this blows over.”
A rise in global oil prices could also reignite inflation, complicating the outlook for policymakers like the Federal Reserve.
“Any rise in energy inflation would be another reason for central banks to proceed cautiously with cutting interest rates, and for the Fed to remain on the sidelines for now,” analysts at Capital Economics said in a Friday note. Fed policymakers are set to meet next week to discuss the economic outlook and interest rates.
McNally at Rapidan Energy Group also told CNN the oil market had been “complacent about the risk of geopolitical disruptions” from the region.
“With Israel having commenced attacks against Iran, we expect significantly more risk premium to come into the price of crude in the coming days,” he said.
Iran’s preparation for a military response “raises the risk of not just disruptions but of contagion in other neighboring oil producing nations too,” Priyanka Sachdeva, senior market analyst at Phillip Nova, told Reuters.
“Although Trump has shown reluctance to participate, US involvement could further raise concerns,” she said.
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