Middle East Tensions Escalate as Israel Strikes Iran, Fueling Oil Surge and Global Market Volatility

Israel's airstrikes on Iran's nuclear program and military targets have caused market uncertainty and fear. Strategists expect things to get worse, leading to a decline in stocks and a flight to quality. Oil prices have surged, and the dollar has reversed earlier losses. Market watchers warn of potential stagflation and the impact of rising oil prices on growth and inflation.

Israel's airstrikes on Iran's nuclear program and military targets have caused market uncertainty and fear. Strategists expect things to get worse, leading to a decline in stocks and a flight to quality. Oil prices have surged, and the dollar has reversed earlier losses. Market watchers warn of potential stagflation and the impact of rising oil prices on growth and inflation.

Oil stocks in Europe gained between 1% to 4% on Thursday following Israel's airstrikes on Iranian nuclear and military targets. Shares of Var Energi, BP (NYSE:BP), Shell, Eni, Aker, Equinor, Tullow Oil (LON:TLW) and TotalEnergies (EPA:TTEF) were up at 05:10 ET (09:10 GMT) [1].

The Natanz uranium enrichment facility in Iran, which houses older centrifuges, was reportedly hit by Israeli airstrikes. However, no confirmation was available on the more fortified Fordow facility. The strikes mark a sharp escalation in Israeli military action, aimed at curbing Iran’s nuclear capabilities [2].

Citi Research analysts noted that the heightened geopolitical risk has driven oil’s price premium higher. Investors are focused on the potential for retaliation by Iran that could extend beyond Israel and affect regional energy infrastructure [1].

The Strait of Hormuz, where about 20.9 million barrels per day of crude and petroleum products are transported, is viewed as a key flashpoint. Citi analysts cautioned that while Iran may struggle to fully close the strait due to the U.S. Fifth Fleet’s presence in Bahrain, it could still disrupt shipping by deploying mines or targeting tankers [1].

Investors are also eyeing Sunday’s scheduled U.S.-Iran nuclear talks, which now hang in uncertainty. Citi analysts said any perceived threat to oil exports from the Gulf would likely push prices higher, with European energy equities continuing to respond to supply concerns and geopolitical developments [1].

Oil markets are now watching for signs that Iran will reactivate tactics used in 2019, when tankers and regional infrastructure were targeted. Market watchers warn of potential stagflation and the impact of rising oil prices on growth and inflation.

References:
1. [1] https://www.investing.com/news/stock-market-news/european-oil-stocks-gain-as-israeliran-tensions-escalate-4094453
2. [2] https://www.reuters.com/world/middle-east/israel-says-it-strikes-iran-amid-nuclear-tensions-2025-06-13/