Dual risks kept investors on edge ahead of markets reopening late on Sunday, from prospects of a broad Middle East war amid Israel-Iran tensions to nationwide protests against U.S. President Donald Trump that threatened more domestic chaos.
Israel launched a barrage of strikes across Iran on Friday and Saturday, saying it had attacked nuclear facilities and missile factories and killed a swathe of military commanders in what could be a prolonged operation to prevent Tehran from building an atomic weapon.
Iran launched retaliatory airstrikes at Israel on Friday night, with explosions heard in West Jerusalem and Tel Aviv.
On Saturday, Israel’s Prime Minister Benjamin Netanyahu said Israeli strikes would intensify, while Tehran called off nuclear talks that Washington had held out as the only way to halt the bombing.
Israel on Saturday also appeared to have hit Iran’s oil and gas industry for the first time, with Iranian state media reporting a blaze at a gas field.
The strikes knocked risky assets on Friday, including stocks, lifted oil prices and prompted a rush into safe havens such as gold and the dollar.
Brent crude prices were at $74.23 on Sunday midday after they touched an intraday high of $78.50 on Friday, a multi-month peak. U.S. West Texas Intermediate crude finished the week at $72.98 a barrel, up $4.94, or 7.62%.
Both benchmarks had their largest intraday moves since 2022 when Russia’s invasion of Ukraine caused a spike in energy prices.
Risks mounting
Meanwhile, protests, organized by the “No Kings” coalition to oppose Trump’s policies, were another potential damper on risk sentiment. Hours before those protests began on Saturday, a gunman posing as a police officer opened fire on two Minnesota politicians and their spouses, killing Democratic state assemblywoman Melissa Hortman and her husband.
All three major U.S. stock indexes finished in the red on Friday, with the S&P 500 dropping 1.14%.
Israel and Iran are “not shadowboxing anymore,” Matt Gertken, chief geopolitical analyst at BCA Research, told Reuters. “It’s an extensive and ongoing attack.”
“At some point, actions by one or the other side will take oil supply off the market,” and that could trigger a surge in risk aversion by investors, he added.
Any damage to sentiment and the willingness to take risks could curb near-term gains in the S&P 500, which appears to have stalled after rallying from its early April trade war-induced market swoon. The S&P 500 is about 20% above its April low, but has barely moved over the last four weeks.
“The overall risk profile from the geopolitical situation is still too high for us to be willing to rush back into the market,” said Alex Morris, chief investment officer of F/m Investments in Washington.
U.S. stock futures are set to resume trading at 6 p.m. (10 p.m. GMT) on Sunday.
With risky assets sinking, investors’ expectations for near-term stock market gyrations jumped.
‘Fear gauge’ soaring
The Cboe Volatility Index (VIX) rose 2.8 points to finish at 20.82 on Friday, its highest close in three weeks.
The rise in the VIX, often dubbed the Wall Street “fear gauge,” and volatility futures were “classic signs of increased risk aversion from equity market participants,” said Michael Thompson, co-portfolio manager at boutique investment firm Little Harbor Advisors.
Thompson said he would watch near-term volatility futures prices for any rise toward or above the level for futures set to expire months from now.
“This would indicate to us that near-term hedging is warranted,” he said.
The concerns over potential attacks on oil refineries, particularly in Iran, also add to the risks over prices in energy markets, which were already shaken due to uncertainty amid on-and-off Trump’s tariffs. However, analysts, despite the situation being tense, predict more unease only if prices soar above $100 per barrel.
Iran’s oil ministry denied on Sunday reports of an incident at Isfahan refinery, Reuters cited state media as saying.
Israel’s Oil Refineries, meanwhile, said its pipelines and transmission lines in Haifa had been damaged by missile strikes by Iran, according to a regulatory filing to the Tel Aviv Stock Exchange.
It said that no injuries or casualties were reported at the sites, with refining facilities continuing to operate despite a shutdown of some downstream operations.
Despite the spike in crude prices, the global benchmark Brent remained well under $80 a barrel. Irene Tunkel, Chief U.S. Equity Strategist at BCA Research, said on Friday she does not see long-term U.S. market implications unless prices soar above $100 a barrel, which would hurt consumer spending.
She said that was unlikely unless oil infrastructure is destroyed or “Iran somehow closes the Strait of Hormuz and (the conflict) spills out of Iran and energy production in Iraq is shifted.”
However, BCA’s Gertken said that the mix of domestic and global tensions is a recipe for more uncertainty and unease across most markets.
“Major social unrest does typically push up volatility somewhat, and adding the Middle Eastern crisis to the mix means it’s time to be wary.”
