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Asian stock and oil markets were muted on Monday following Iran’s military attack on Israel, as traders shrugged off fears that the conflict could escalate into a full-blown war and curb supplies from the region .
Brent crude, the international benchmark, fell to $90.31 a barrel in early trading in Asia on Monday morning. West Texas Intermediate, the US indicator, also remained essentially unchanged at $85.44 a barrel.
The muted reaction suggested markets were betting that the fallout from the attack would be contained after Iran said it considered the matter “over” and Washington sought to ease tensions.
Traders were anxiously watching to see how the market would react after the Islamic republic launched its first-ever attack on Israel from its own territory on Saturday. Tehran has sent drones and missiles into the Jewish state in retaliation for an alleged Israeli attack on its consulate in Damascus that killed several military commanders.
Asian stock markets remained subdued. China’s benchmark CSI 300 index of stocks listed in Shanghai and Shenzhen rose 1.9% as investors digested new guidelines from the country’s securities regulator.
Hong Kong’s Hang Seng Index fell 0.7% and Japan’s benchmark Topix fell 0.5%. The yen weakened 0.4% against the dollar to 153.77 yen.
The price of safe-haven gold rose to $2,355 a troy ounce, “driven by major buying by emerging markets and central banks in Asia, including China, as well as strong retail demand,” he said. said Tareck Horchani, deal head, prime brokerage, at investment banking group Maybank.
Daniel Hynes, senior commodities strategist at ANZ Bank, said the calibrated nature of the attacks and the fact they were well telegraphed had eased the oil market’s concerns.
“We had an oil price increase before the weekend and therefore a geopolitical price premium had already been created before this event,” he said.
US President Joe Biden has urged Israel to take a measured approach in its response. Prime Minister Benjamin Netanyahu’s war cabinet met Sunday but made no decision on how the country will react.
Experts have warned that a harsh response from Israel could worsen the conflict, limiting oil supplies from the region and driving up prices.
“Significant Israeli retaliation could trigger a destabilizing retaliatory cycle and move this conflict up an escalation ladder,” said Helima Croft, head of global commodities strategy at RBC Capital Markets and a former CIA analyst. “In such a scenario, we believe the risk to oil is not insignificant.”
He added: “Although Iran does not have the ability to close the Strait of Hormuz, it appears to have the ability to replicate its 2019 program of attacking oil tankers, pipelines and critical energy infrastructure.”
Oil markets rose to their highest levels since October in recent weeks following the attack on Damascus as markets assessed the potential for an escalation of the conflict that could affect Gulf supplies.
Bob McNally, president of the consultancy Rapidan Energy and a former energy adviser to George W. Bush, said the fallout from the strike could still push prices “toward, if not beyond, $100 a barrel.”
“The market had been complacent about the expansion of the Gaza conflict to include Iran and, therefore, a material risk to Arabian Gulf oil and gas. [liquefied natural gas] production and exports,” he said.
An escalation of the conflict risks upsetting an already tense oil market globally as demand rises in large economies such as the United States and China while OPEC+ producers limit supply.
“The United States and China stand to lose from the expansion of the conflict as it would have a significant impact on the region’s energy exports, oil prices and the global economy,” said Ayham Kamel, head of the Middle East region and North Africa at Eurasia Group consultancy.
Any price rise would come at a particularly sensitive time for the U.S. president, who has struggled to sell his economic achievements to voters ahead of November’s election amid stubbornly high inflation.
A further rise in crude oil prices threatens to exacerbate already high pump prices months before Americans go to the polls. According to automotive group AAA, the average price of gasoline in the United States is $3.63 a gallon, up about 15% since the beginning of the year.
“It is difficult to overstate how unwelcome a geopolitically driven oil price increase would be for both the economy and President Biden’s reelection,” McNally said.
Additional reporting by William Sandlund in Hong Kong