Global financial markets fell sharply on Friday after Israel launched a large-scale military strike on Iran, targeting what it said were nuclear facilities, missile factories, and key military figures.
The attack triggered a dramatic response in global markets, with investors fleeing risk assets in favor of traditional safe havens like gold, the U.S. dollar, and the Swiss franc.
Oil prices surged amid fears of prolonged instability in the Middle East, a region central to global energy supply. Crude briefly spiked by as much as 14% to nearly $79 per barrel, before easing slightly to around $74—still up over 5% for the day and on track for its biggest single-day gain since 2022. U.S. oil futures also jumped more than $5 to trade at $73.14.
Gold, a classic safe haven, soared to $3,416 per ounce just shy of its April record high of $3,500.05 as investors sought security amid rising geopolitical uncertainty.
Stock markets around the world responded with steep losses. U.S. futures dropped more than 1.5%, while European indexes opened down roughly 1%. In Asia, major markets in Japan, South Korea, and Hong Kong also fell over 1%.
“The market has got its stocks down, oil and gold up,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London. “The big question now is how far this escalation will go.”
The Israeli offensive came in response to a recent drone attack by Iran, which reportedly launched around 100 drones toward Israeli territory. Israel said it was intercepting the drones and beginning what could be a prolonged military operation aimed at preventing Iran from acquiring nuclear weapons. The U.S. has stated it was not involved in the Israeli operation.
The flare-up in the Middle East adds yet another layer of uncertainty to already fragile global markets, which are also navigating volatile U.S. trade and economic policies under President Donald Trump.
“The geopolitical escalation adds another layer of uncertainty to already fragile sentiment,” said Charu Chanana, chief investment strategist at Saxo. She noted that if tensions continue to rise, crude oil prices and safe-haven assets will likely keep climbing.
The impact of the conflict extended beyond commodities and equities. Israel’s currency, the shekel, slid nearly 2%, and long-dated dollar-denominated bonds from Israel, Egypt, and Pakistan also dropped.
In the bond market, demand for safer U.S. Treasuries pushed yields lower. The 10-year Treasury yield fell to a one-month low of 4.31%. Germany’s 10-year bond yield also dropped to its lowest point since early March, at 2.42%.
Analysts warned that if oil prices remain elevated, central banks may delay or reconsider expected interest rate cuts. “The bond market’s response will ultimately hinge on how severe the rise in energy costs turns out to be,” Scicluna added.
Currency markets saw the dollar regain ground, with the dollar index climbing 0.6% to 98.277, recovering most of Thursday’s losses. The Swiss franc briefly hit its strongest level against the dollar since April before easing slightly, while the Japanese yen gave up earlier gains to trade 0.2% lower at 143.79 per dollar.
The euro slipped 0.4% to $1.1534, pulling back from its highest level since October 2021. The British pound also dropped 0.4% to $1.3556 after briefly reaching its strongest level since February 2022 earlier in the day.
“Traders are now on edge over the prospects of a full-blown Middle East conflict,” said Matt Simpson, senior market analyst at City Index. “That will keep uncertainty high and volatility elevated in the days ahead.”
