Oil price surges 4% as attack on Israel prompts fears of expanding Middle

Oil prices jumped and stock markets around the world mostly slumped after deadly attacks by Hamas from the Gaza Strip prompted Israel to declare war.

The price of a barrel of West Texas Intermediate oil jumped by almost $5 to more than $86 US a barrel on Monday, mostly on concerns that the volatile situation could ensnare more countries in the region.

Israel is a marginal oil producer, but nearby nations in the Middle East are major suppliers, and if they get involved in the fighting, global supplies will be significantly impacted.

“While oil fundamentals have not changed since these attacks, it does not mean they won’t,” said Warren Patterson, head of commodities strategy at Dutch bank ING. “There are reports that Iran helped Hamas plan the attacks and gave them the green light. If this is proven to be true, we could see the U.S., an ally of Israel, taking a tougher stance against Iran, which could ultimately lead to a reduction in oil supply.” 

The Toronto Stock Exchange was closed for the Thanksgiving holiday on Monday, and most major Asian markets are also closed. But the New York Stock Exchange was open and stocks mostly slumped to start with and rebounding somewhat later in the day. The S&P 500 was 0.6 per cent higher in its first trading since the attack. Trading has been unsteady, with the benchmark index falling as much as 0.6 per cent earlier.

Traders assess geopolitical risk

Shares in weapons makers and military contractors surged: Northrop Grumman and RTX each rose 3.6 per cent while Lockheed Martin jumped 4.6 per cent.

Shares in travel and leisure companies, such as airlines and cruise ships, tumbled. American, United and Delta suspended service to Israel as the U.S. State Department issued travel advisories for the region, citing potential for terrorism and civil unrest. American Airlines sank 5.6 per cent, and Norwegian Cruse Line fell 4.5 per cent. 

Tel Aviv’s main stock benchmark was down 0.4 per cent. It closed 6.5 per cent lower Sunday, after the attacks. Early Monday, Israel’s Central Bank said it will sell up to $30 billion US in foreign exchange to prop up the shekel, which fell to a near 8-year low.

Edward Moya, an analyst with foreign exchange firm Oanda, said: “It was supposed to be a quiet Monday morning given the Columbus Day holiday,” but following the unexpected Hamas attack, “traders are struggling to assess how this latest geopolitical risk will unfold and potentially impact inflation and growth trends.”

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