The FTSE 100 was steady on Monday as investors reacted to US strikes on Iranian nuclear facilities over the weekend that mark a major escalation in the Middle East conflict.
Oil prices rose and equities fell on Monday. However, with Iran yet to respond militarily, the gains in oil were limited, and stock declines were contained. London’s leading index reversed early losses to trade flat at the time of writing.
The big risk for markets is Iran closing the Strait of Hormuz, through which around 20% of the world’s oil passes. Some analysts have predicted that the closing of the channel between Iran and the UAE would send oil prices above $100.
The US has reportedly asked China to intervene and help prevent Iran from closing the Strait of Hormuz. China receives a huge amount of oil from the region and would be hit economically by higher oil prices and supply disruption.
“There is a tense mood on financial markets as investors assess the potential repercussions of the US attack on Iran. Investors had breathed a sigh of relief on Friday as it appeared a two-week window had opened when a diplomatic solution could be pursued, so the weekend’s military action has knocked sentiment,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
Investors’ major concern is that further escalation will lead to higher oil prices and energy bills that will stoke inflation and weigh further on slowing economies.
“At a time when there were signs that inflation was becoming a little less troublesome, the geopolitical situation has added a slick of fresh uncertainty into the mix, pushing up energy prices.” Streeter said.
BP and Shell were again higher. No surprise there.
Convatec was the top riser after being added to JPMorgan’s ‘positive catalyst watch’. Shares were 2% higher.
Bargain hunters stepped into Berkeley Group after a poor session on Friday, sending shares 1% higher.
JD Sports shares were the FTSE 100 top faller with a 1.7% decline. The threat of higher household bills as a result of rising oil prices will do no favours for retailers that are already contending with tariff uncertainty. JD Sports couldn’t be more exposed to Trump’s tariffs or fluctuations in discretionary spending.