Oil surges and Stocks Fall after Iran Targets US Facilities in Iraq

Oil prices surged on Wednesday after Iran fired rockets at military bases in Iraq hosting United States forces, raising the prospect of a regional conflagration that could disrupt oil supplies. Stocks fell sharply.

Brent crude futures soared $1.83, or 2.7 percent, to $70.10 by about 01:48 GMT, after earlier rising to $71.75, the highest since mid-September 2019.

West Texas Intermediate crude futures climbed nearly $2, or almost 3 percent, to $64.30 a barrel. It earlier reached a high of $65.85, the most since late April last year.

Iran launched an attack on US-led forces in Iraq, the US military said on Tuesday, adding that Tehran fired more than a dozen rockets from Iranian territory against at least two Iraqi military bases hosting US-led coalition personnel.

The attacks follow the US killing of Iranian military commander Qassem Soleimani in Iraq last week. Iran had promised a severe response.

“We’ve moved on from how Iran will respond to now anticipating the US 52-pronged response as the US military forces in the region are in a heightened state of alert while likely preparing for war,” said Stephen Innes, strategist at AxiTrader. “It’s not going to be pretty today.”

The price of gold also shot higher, rising 1.91 percent on the spot market to $1,603.93 per ounce ($30,161.88 per gramme) as investors rushed to safe-haven investments.

Meanwhile, Asian shares and US treasury yields plunged on Wednesday as investors’ fears were renewed that military action between Iran and the US could escalate.

In Asian morning trade, MSCI’s broadest index of Asia-Pacific shares outside Japan shed 1 percent. Japan’s Nikkei dropped 2.5 percent and Australian shares fell 1 percent.

China’s blue-chip CSI300 index began the day down 0.56 percent.

“It’s a very classic risk off” market response, said Rob Carnell, Asia-Pacific chief economist at ING in Singapore.

“This is the Iranian response to the killing of Soleimani. We now have to see what the US response to the Iranian response is. This looks as if it could escalate,” he said.

The sharp sell-off in riskier assets, which includes stocks, was accompanied by steep drops in US Treasury yields as investors flocked to safety. Benchmark 10-year Treasury notes yielded 1.7188 percent, down more than 10 basis points from a US close of 1.825 percent on Tuesday.

“If you see US treasuries rallying a bit this morning, expect them to rally quite a bit further should there be a forceful response from the US, which I’d imagine there would be … from a market perspective I think this one could run and run,” Carnell said.

The US dollar also plunged against the yen, with the Japanese currency touching its strongest point against the greenback since October. The US currency was last down 0.69 percent against the yen at 107.67.

The euro gained 0.1 percent on the day to $1.1161.