Oil prices soared more than four per cent Friday following news that the US had killed a top Iranian general, fanning fresh fears of a conflict in the crude-rich region.
Brent surged 4.4 per cent to $69.16 and WTI jumped 4.3 per cent to $63.84 as investors grow increasingly worried about the effects of a possible flare-up in the tinderbox Middle East on supplies of the commodity.
Both contracts later pared the gains but remained well up. Iran’s Supreme leader Ayatollah Ali Khamenei has vowed ‘severe revenge’ for the US strike that killed one of the country’s top generals.
The attack on the embassy highlighted new strains in the US-Iraqi relationship, which officials from both countries have described to AFP as the “coldest” in years.
Oil prices saw a record surge in September after attacks on two Saudi Arabian facilities briefly slashed output in the world’s top exporter by half, with Trump blaming Iran for the attack and previous other blasts on tankers in the Gulf last year.
The crisis also comes as tensions between the US and North Korea worsen, with Kim Jong Un declaring a self-imposed moratorium on nuclear and intercontinental ballistic missile tests had ended, with US talks going nowhere.
“We are waking up to a less safe world than it was only hours ago, especially if we combine this with simmering tension in the Korean peninsula,” Innes added.
The drama sent investors rushing for the hills and safe-haven units rallied with the yen up 0.7 per cent against the dollar and gold climbing 1.4 per cent towards $1,600 and a near seven-year high.
High-risk currencies retreated against the greenback, with South Korea’s won down 0.6 per cent, Australia’s dollar off 0.4 per cent and the South African rand down more than one per cent.
Equities were mixed, having been rallying for the second day of the year on China-US trade optimism.
Hong Kong fell 0.3 per cent, Shanghai ended down 0.1 per cent and Singapore retreated 0.7 per cent, while Mumbai eased 0.5 per cent.
Regional energy firms were the big winners, with Santos surging more than two per cent in Sydney and while Hong Kong-listed PetroChina climbed more than three per cent.
Markets had all been well up before news of the strike, thanks to ongoing optimism fueled by the China-US trade agreement, looser central bank monetary policies and easing Brexit worries.
“Investors are worried that the situation in Iran will worsen since there could be some retaliation,” said Steven Leung at Mizuho Bank.
“People will want to cut risk ahead of the weekend. Stocks have rallied a lot in the past month or so, so any bad news flow is a reason to take profit,” he added.
Key figures (Oil Prices) ; West Texas Intermediate: UP $1.73 at $62.91 per barrel, Brent Crude: UP $1.96 at $68.21 per barrel, Hong Kong – Hang Seng: DOWN 0.3 per cent at 28,468.23, Shanghai – Composite: DOWN 0.1 percent at 3,083.79 (close), Tokyo – Nikkei 225: Closed for a public holiday Pound/dollar: DOWN at $1.3120 from $1.3139 at 2200 GMT, Euro/pound: UP at 85.14 pence from 85.02 pence, Euro/dollar: DOWN at $1.1170 from $1.1172, Dollar/yen: DOWN at 108.12 from 108.54 yen, New York – Dow: UP 1.2 percent at 28,868.80 (close) London – FTSE 100: UP 0.8 percent at 7,604.30 (close)