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Oil prices soar, stock markets tumble on Middle East turmoil

As military conflict in the Middle East appeared to be extending into the next few weeks, investors flocked to relative safety offered by the dollar and gold.

Brent rose?4.5% to $76.07 per barrel. It had briefly reached $82.00 at one point. U.S. crude increased 3.9% to $69.59 a barrel. Gold grew 1.0% to $5 327 per ounce.

The United States and Israel's military strikes on Iran have not ceased, but Iran has responded with missile attacks across the region. This could drag its neighbours into a conflict.

Donald Trump told the Daily Mail that the conflict could continue for another four weeks. He also posted on Twitter that the attacks would continue until U.S. goals were achieved.

The Strait of Hormuz was the focus of attention. It is where a fifth of all oil traded by sea and 20% of liquefied gas are transported. Marine tracking sites show that the waterway is not yet blocked but tankers are piled up on both sides of the strait, perhaps because they cannot get insurance.

The most immediate and tangible?development affecting the oil markets is an effective halt of the traffic through the Strait of Hormuz. This prevents 15 million barrels of crude oil per day (bpd), from reaching the markets, said Jorge Leon. He is head of geopolitical analyses at?Rystad.

We expect oil prices to rise significantly unless de-escalation signs are quickly sent out.

A sustained spike in oil price could reignite inflationary pressures worldwide, and act as a tax for consumers and businesses that would dampen demand.

OPEC+ agreed on Sunday to a modest increase in oil production of 206,000 barrels a day for April, but a large amount of this product must still be transported out of the Middle East via tanker.

Alan Gelder is Wood Mackenzie's SVP for refining and chemicals. He said that the Middle East oil embargo in the 1970s increased oil prices 300%, to $12/bbl by 1974.

This is just US$90/bbl by 2026. In today's market, where there are concerns about supply losses, it seems possible to surpass this.

The Nikkei fell by 1.4% as a result. Airlines were the worst hit. Blue-chips in China went their separate ways and held steady.

The broadest MSCI index of Asia-Pacific stocks outside Japan dropped 1.2%.

It's a big US data week

The UAE and Kuwait have temporarily closed their stock exchanges in the Middle East, citing "exceptional situations".

In Europe, EUROSTOXX50 futures fell 1.4% while DAX futures dropped 1.3%. S&P 500 and Nasdaq Futures both fell 0.6% on Wall Street.

The dollar was the main beneficiary of the oil shock. The U.S. has a large energy industry and Treasuries remain a safe haven during times of stress. This caused the euro to drop?0.2%, or $1.1788.

The Japanese yen is often seen as a safe haven, but the country imports its entire oil supply. This makes the flow of money more bi-directional. The dollar rose 0.1% to 156.25 Japanese yen while the Australian dollar gained, often used as a liquid proxy of?global risks.

On the bond market, 10-year Treasury rates have remained steady at 3,970% after briefly touching a 11-month low 3.926%.

Bonds were in high demand on Friday after UK mortgage lender MFS went into administration due to allegations of financial irregularities. The collapse of MFS stoked credit concerns, as well-known banks were among its lenders. MFS had borrowed 2 billion pounds ($2.69 billion).

Wall Street was hit by the news, which impacted banking stocks and AI-related stocks.

Investors will also be faced with a torrent of?U.S. This week we have a number of economic reports, including the ISM manufacturing survey, retail sales, and the ever-important payrolls report.

After a disappointing quarter, any weakness in the economy could undermine confidence. It would also reduce the chances of a rate cut from the Federal Reserve.

The markets currently indicate a 50% probability of easing this June, and about 60 basis point cuts for the rest of the year. (Reporting and editing by Sam Holmes, Shri Navaratnam and Wayne Cole)

(source: Reuters)