Oil prices advanced and global stocks faltered after a U.S. airstrike in Baghdad killed an Iranian military leader, recharging tensions in the oil-rich Middle East.
Brent crude gained as much as 4.2%, hitting an eight-month high at $69.01. U.S. crude climbed 3.7% to $63.44 in recent trading.
A recent stock rally came to a halt, with all three major indexes falling sharply after the opening bell.
“Geopolitical risks had really moved to the back burner. Last night was a wake-up call that they are a factor that we may need to contend with in 2020,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
President Trump ordered the strike that killed Qassam Soleimani, the leader of Iran’s Islamic Revolutionary Guard Corps’ foreign wing, late Thursday. An Iraqi paramilitary commander, Abu Mahdi al-Mohandes, also died.
The Iranian foreign minister Javad Zarif called the strike “an act of international terrorism.’’
Despite U.S.-led sanctions, Iran exported an average of 599,000 barrels of oil a day in 2019, according to data from the International Monetary Fund.
The killing also pushed relations between the U.S. and Iraq to a low point since the 2003 invasion.
The news spurred a dash for haven assets like gold and government bonds. The Japanese yen recently strengthened.
Shares of major oil and defense companies were some of the biggest gainers in the S&P 500, while airline operators were among the biggest losers. Occidental Petroleum gained 2.2%, while Hess added 3.3%. Marathon Oil advanced 2.3%. Oil company stocks in Europe and Asia also climbed along with crude prices.
Northrop Grumman and Lockheed Martin jumped 4.5% and 2.9%, respectively. Meanwhile, American Airlines Group declined 4.7%, while United Airlines Holdings fell 3.7%.
Some see the market reaction to the attack as relatively muted and point to previous geopolitical scares that markets quickly moved beyond.
“We’ve seen this story before,” said Fahad Kamal, chief market strategist at Kleinwort Hambros, referring to repeated flare-ups over the years in Middle East tensions. “The big risk is that the event spirals out of control and we get contagion and some big retaliation. But we don’t expect this to happen,” he said.
Trader Aleksandar Kumanov