Gulf markets brace as US strikes Iran

• Israel also launches attacks
• Iran fires missiles across Gulf
• Oil prices expected to rise

The US and Israel launched attacks on Iran on Saturday, heightening worries about energy supply and trade disruptions and a higher geopolitical risk premium when markets open.

Iran has fired missiles towards the UAE, Saudi Arabia and Qatar, where US air bases are located, threatening to widen the conflict in the Gulf region. 

Opec+ are considering a larger oil supply hike than they had originally planned at a meeting on Sunday, Reuters reported, citing two people familiar with the discussions.

The effect of the strikes on oil prices will hinge on the duration and severity of any disruption, William Jackson, chief emerging markets economist at Capital Economics, said. “A limited set of strikes could plausibly send oil towards $80 per barrel, while a longer conflict that causes disruptions to supply could send prices much higher,” Jackson said.

Brent closed at $72.48 a barrel on Friday.

Saudi Arabia and the UAE had already lifted oil exports in expectation of potential market disruption ahead of an anticipated US-Israeli strike.

Eight members of the Opec+ alliance – Saudi Arabia, Russia, the UAE, Kazakhstan, Kuwait, Iraq, Algeria and Oman – were already due to meet this weekend.

An expanded conflict that draws in other producers in the oil-rich region, or disrupts shipping through the Strait of Hormuz, a key artery for global crude flows, could tighten supplies, threaten energy infrastructure and push oil and gas prices higher, say analysts.

The fallout could ripple beyond energy, raising shipping and aviation costs and significantly disrupting trade flows, driving sharper risk premiums.

With widespread closures of regional air spaces, the situation is already “disrupting Gulf aviation corridors,” Arth Malani, head of NorthStar Insights, a risk and communications consultancy with offices in Dubai and London, said in a note to clients on Saturday.

“War risk insurance premiums across maritime and logistics operations will escalate sharply. Expect disruption to shipping lanes through the Arabian Sea,” he said.

A response by Opec+ to any immediate impact on energy markets, the extent of flight cancellations in coming days, and the personnel and logistics decisions of major multinationals with Gulf headquarters are among the key developments to monitor, according to Malani.

Multiple airlines have diverted flights in the region, while embassies have advised nationals to shelter in place.

Reuters

Blasts were reported across the Gulf including in Manama, Bahrain

There were cancellations and delays in flights at Dubai Airport and Al Maktoum International Airport on Saturday due to partial and temporary closure of UAE airspace. 

The UAE Ministry of Interior said in a statement to state news agency Wam that it has successfully intercepted missiles targeting the country, and that falling debris killed an Asian national in Abu Dhabi.

The security situation in the UAE is stable, it added.

Officials are “closely monitoring” developments and are at the “highest level of readiness” to protect citizens, residents and visitors, according to Wam news releases in which the Ministry “strongly condemned the attacks”.

The governments of Bahrain, Kuwait, Saudi Arabia and Qatar expressed similar sentiments after explosions were heard over their capitals on Saturday, and as US bases came under Iranian attack in the region.

Further reading:

• Frank Kane: In any Trump strike on Iran, Hormuz is the real prize
• John Manners-Bell: What a US-Iran breakdown would mean for global shipping
• Matein Khalid: Iran crisis will hit energy markets and global risk assets

Strikes were reported across Iran, including in Tehran as well as Isfahan and Qom. 

Israel declared a state of emergency and closed its airspace.

President Donald Trump said in a video posted to social media that the US had begun a “massive and ongoing” military campaign in Iran to prevent it, “from threatening America and our core national security interests.”

Iran’s Ministry of Foreign Affairs said in a statement that a “renewed military aggression” against Iran is being committed while Iran and the US were “in the midst of a diplomatic process”.

This is a developing story.