Oil price jumps and airline shares fall as Hamas attack on Israel rattles markets – business live

The oil price is holding most of its earlier gains, with Brent crude currently up 2.8% at $86.80 per barrel, up $2.20.

Callum Macpherson, head of commodities at Investec, predicts that the oil price will remain supported until it is clear the supply risks have subsided.

Macpherson says:

“The tragic events in Israel over the weekend have led to comparisons with the Yom Kippur war and the ensuing oil embargo and oil crisis in the 70s, but this is probably a bit of an exaggeration. Israel is at war with a militant group now, not a collation of Arab states as it was then. Hamas does have the backing of Iran, of course.

Consequently, the tentative and informal reproachment with the US could be a causality, and that might lead to a renewed focus on sanctions and limiting Iranian output that had been growing this year. That seems to be the most obvious risk for oil.

William Jackson, chief emerging markets economist at Capital Economics, warns that the economic impact of the Israel-Hamas conflict will depend both how long it lasts, and how far it spreads.

Jackson told clients:

The attack by Hamas militants on Israel on Saturday has led to widespread casualties and deaths, and the declaration of war by Israel’s prime minister. From an economic perspective, the experience from the 2014 Gaza war suggests that the effects on Israel’s economy will be relatively small and short lived. But the situation is in flux and the economic effects will depend on the severity and length of the conflict, and the extent to which it spreads to the broader region.

There are also important geopolitical implications, particularly if the tentative Saudi-Israel peace plan is derailed and/or it leads to greater tensions with Iran, both of which would add upwards pressure to oil prices.

Many stock markets across the Gulf region are in the red this morning.

The Dubai general index has dropped by 2.8% this morning, while Kuwait’s main market is down 1.8% and Qatar has lost 1.3%

Israel’s TA-35 index has lost its early bounce, and is now down 0.5%.

Saudi Arabia’s Tadawul has slipped by 0.35%, with oil giant Saudi Aramco dipping by 0.6%.

British airline Virgin Atlantic said its flights between London Heathrow and from Tel Aviv could face delays or cancellations.

Virgin said it had cancelled flights VS453 and VS454 on Monday and Tuesday, but planned to continue to operate VS457 and VS458.

Shares in European-listed companies with major business exposure to Israel are falling this morning.

Energean, the London-based oil producer which is also listed on the Israel stock exchange, have fallen over 14% – the top faller on the FTSE 250 share index. Energean is focussed on the Eastern Mediterranean.

Israel-based antennas maker MTI Wireless’s are down 11.2%.

BATM Advanced, the Israel-headquarted producer of technologies for networking solutions and medical laboratory systems, told the City this morning that “it does not expect the tragic recent developments in Israel to have a material impact on trading”.

But still, BATM’s shares are down 8.5% this morning.

The Israel-Hamas conflict could push the global economy closer to a downturn, if it disrupts oil supplies from the wider region.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:

“Fears of a potential retaliation against Iran threaten the passage of vessels carrying oil through the Strait of Hormuz and flip the market rhetoric from a potentially slowing global oil demand to tight global supply….

Escalation and prolongation of Mid-East tensions could be the final straw that could bring the world very close to the brink of recession”.

The dash for safe haven assets has pushed the dollar up against both the pound and the euro this morning.

Sterling has lost half a cent, to $1.219 against the dollar, while the euro is also half a cent lower at $1.0535.

Today’s jump in the oil price will fuel inflationary worries.

And it comes at a time when investors are already jittery about the interest rates potentially staying higher for longer, says Susannah Streeter, head of money and markets at Hargreaves Lansdown:

‘‘The shocking attacks in Israel have sent the price of oil soaring, as investors assess the potential for the conflict to disrupt supply in the Middle East, if other countries are drawn in. With the Israeli government warning of a long and difficult war, there are concerns that deep and incessant retaliative strikes on Gaza could potentially bring Iran into the conflict and have an impact on the flow of energy in the region.

Nerves are showing signs of being frayed again just as investors had started to breathe a sigh of relief that the US might be heading for a softer landing, despite the high level of interest rates.

Hungarian airline Wizz Air has joined the ranks of airlines cancelling flights to and from Tel Aviv.

Wizz says flights are on hold until further notice.

A spokesperson says:

“We are continuing to monitor the situation closely and are in touch with the relevant authorities.”

Yesterday, US air carriers United Airlines, Delta Air Lines and American Airlines said they had suspended direct flights, as did Air France and Finland’s Finnair.

Jim Reid of Deutsche Bank points out that Hamas’s attack on Israel on Saturday morning came 50 years after the 1973 Arab–Israeli War, telling clients:

Markets will spend a fair amount of time in the early part of this week trying to understand the implications of the most serious cross-border attack on Israel in decades early on Saturday morning. It was 50 years ago on Friday that the Yom Kippur War started after a surprise attack on Israel so there are some parallels. This war cast a shadow over the rest of the 1970s so although we’re a long way from that, it’s a reminder that geopolitical risk is elevated at the moment with the Ukraine conflict, the US/China tensions and now those resurfacing in the Middle East. How Saudi Arabia, Iran, and the US get drawn into this will be key.

Geopolitical risk doesn’t tend to linger long in markets but there are many second order impacts that could come through in the weeks, months and years ahead from this weekends’ developments.

So far this morning Brent oil is +3.68%, having been around +5% a little earlier in the session. To put this in some context it was down over -11% last week. Israel’s stock market was down -6.5% yesterday. With the US bond market closed for Columbus Day it’s not going to be the most liquid day of trading.

The Tel Aviv stock market has opened 1% higher, having fallen over 6% yesterday.

This follows the Bank of Israel’s pledge sell up to $30bn in foreign exchange to stabilise the shekel (see 7.46am).

Weapons maker BAE System is leading the FTSE 100 risers in early trading, up over 4%.

It’s followed by oil producers BP (2%) and Shell (+1.5%), and gold and silver producer Fresnillo (+1.4%).

Airline shares fall

Israel’s dollar-denominated government bonds have dropped sharply in early European trading, Reuters reports.

They add:

Israel’s 2060-maturing bond was last down 3.7 cents, which, if maintained, would be its biggest daily drop since the start of 2021, according to LSEG data.

Here’s Victoria Scholar, head of investment at interactive investor, on the situation in the markets this morning:

“Oil prices are staging gains up by around 3.5% driven by the escalation of violence between the Palestinian Islamist group, Hamas and Israel. Israeli prime minister Benjamin Netanyahu said there’s a ‘long and difficult war’ ahead.

It comes after oil suffered its worst weekly slide since March, reversing some of the sharp rally seen between June until the peak in late September. While Israel and Palestine are not oil producers themselves, the Middle East is a key region in terms of global oil output. The Israeli authorities have alleged that Iran, a supporter of Hamas and a key oil exporter, had some involvement in the violence.

However, US Secretary of State Antony Blinken told CNN, ‘we have not yet seen evidence that Iran directed or was behind this particular attack.’ Any indication of significant involvement from Iran could negatively impact its oil exports and in turn lead to higher prices. Meanwhile OPEC+ policy is expected to remain unchanged despite the geopolitical uncertainty with Saudi Arabia and Russia sticking to their voluntary production cuts, also providing support for the oil market.

As the war enters its third day, risk-off sentiment is gripping markets, lifting safe-haven assets like gold, silver, treasuries, the US dollar, and the Japanese yen. Meanwhile investors are selling riskier equities with US futures pointing to a weaker open. The Israeli shekel is also depreciating, touching its weakest level against the US dollar since 2016.”

Stock markets across the Middle East fell yesterday, led by a 6%+ drop in Tel Aviv, as investors across the region reacted to the Israel-Hamas war.

Bloomberg has the details:

The fallout from Saturday’s surprise attack on Israel by the Palestinian group Hamas reverberated through Middle East markets, sending stocks sliding and setting the tone for what’s likely to be a volatile week.

Major equities gauges in the region fell Sunday, led by a 6.4% drop on Israel’s benchmark TA-35 stock index, its biggest loss in more than three years. The Tadawul All Share Index in Riyadh fell 1.6% while stocks in Qatar and Kuwait also weakened.

The EGX30 gauge in Cairo slumped 2.6% after an Egyptian policeman opened fire on a group of Israeli tourists, killing two of them, in the Mediterranean city of Alexandria.

The Bank of Israel to sell up to $30bn to support shekel

Introduction: Oil jumps as Middle East conflict shakes markets