Energy anxiety returns to haunt markets

LONDON:

Global financial markets convulsed on Monday as the expanding Iran-US war sent energy prices surging, equities sliding and investors scrambling for traditional safe havens, reviving fears of a fresh inflation shock just as major economies were struggling to regain steady footing.

Oil prices leapt more than 7%, with Brent briefly pushing past $80 a barrel, as traffic through the Strait of Hormuz - a chokepoint for roughly 20% of global seaborne crude - was severely disrupted. Several vessels were attacked and shipping insurers reassessed risks, fuelling concern that supply flows could tighten further if the conflict drags on.

Natural gas markets reacted even more violently. European benchmark prices soared as much as 50% after QatarEnergy halted liquefied natural gas production following attacks on key facilities. With Europe already reliant on LNG to refill depleted storage, traders warned that a prolonged disruption could intensify competition with Asia and drive prices sharply higher.

Equity markets from Tokyo to Frankfurt recoiled. European bourses suffered their steepest one-day falls in months, led by banks and travel stocks, while Wall Street opened lower before paring losses. Airline and cruise operators slid on higher fuel costs and airspace closures, while defence contractors and energy majors advanced on expectations of stronger demand and revenues.

Currency markets reflected a classic flight to safety. The dollar climbed about 1% against the euro, while gold gained as investors sought shelter from mounting geopolitical risk. Government bond yields in the euro zone rose rather than fell, as traders focused less on safe-haven flows and more on the inflationary implications of sustained energy spikes.

Economists cautioned that an extended conflict risks tipping the global economy towards stagflation - the toxic mix of rising prices and weak growth. Higher fuel bills, disrupted logistics and increased shipping costs could erode consumer purchasing power and corporate margins, complicating central bank plans for rate cuts.

For now, markets appear to be betting on a contained conflict. But as analysts note, if oil were to move decisively above $100 a barrel and gas supplies remain constrained, the economic aftershocks would be far harder to contain than Monday's market turbulence suggests.