The FTSE 100 index declined this morning following the outbreak of conflict in the Middle East involving Iran. After reaching record highs last week, the UK’s benchmark stock index fell 90 points, or 0.83%, to 10,820.5 by 9:30 a.m.
Oil Prices Spike Amid Strait of Hormuz Warnings
Oil prices surged due to concerns over potential disruptions in energy supplies. Iran issued warnings to tankers in the Strait of Hormuz, stating no ships would be permitted passage. Brent crude oil rose 9% to $79.75 by 8:45 a.m.
Investors turned to safe-haven assets, driving gold prices up 2.2% to $5,393. Higher oil costs also raised fears of renewed inflation pressures.
Market Movements Tempered by Energy and Defense Gains
The FTSE 100’s drop was moderated by gains in energy, commodities, and defense sectors. These areas benefited from elevated oil prices, increased gold demand, and anticipated rises in defense spending.
Key performers included BAE Systems, which climbed 6.2%, Shell up 3.6%, and BP advancing 2.9%.
Top Risers on FTSE 100 (9 a.m.)
- BAE Systems: +6.2%
- Shell: +3.6%
- BP: +2.9%
Airlines and banks led the declines, with IAG (BA owner) dropping 6.6%, Barclays falling 5.6%, HSBC down 4.3%, easyJet declining 3.9%, and Intercontinental Hotels slipping 5.4%.
Top Fallers on FTSE 100 (9 a.m.)
- IAG: -6.6%
- Barclays: -5.6%
- HSBC: -4.3%
- easyJet: -3.9%
- Intercontinental Hotels: -5.4%
Escalating Conflict Fuels Investor Caution
Tensions intensified after U.S. and Israeli strikes on Iranian targets on Sunday, following the killing of Supreme Leader Ayatollah Ali Khamenei. Iran responded with a series of reprisal attacks yesterday.
Richard Hunter, head of markets at Interactive Investor, noted: ‘The sinister developments over the weekend have unsurprisingly had a debilitating effect on many asset classes, not least of which is uncertainty around the escalation and duration of the conflict. At the eye of the storm was the potentially inflationary spike of the oil price at a time when central banks are still hoping that any further price rises could be contained. Despite oil, defense and mining stocks providing a strong prop, the FTSE 100 was hit by a stronger wave of investor pessimism. Travel stocks understandably bore the brunt, with an initially vertiginous fall of up to 11% for International Consolidated Airlines and a near 5% drop for easyJet.’
Susannah Streeter, chief investment strategist at Wealth Club, added: ‘Investors are scuttling towards safe havens, seeking shelter as conflict widens in the Middle East. Precious metals prices have ratcheted up again, with gold and silver increasingly sought after in these turbulent times. Gold has reached a one-month high, after recording its seventh consecutive monthly gain in February – the best winning streak since 1973. While oil prices have increased sharply, this is not yet mirroring the 1970s surge. However, with tensions escalating and uncertainty so high, it is far from clear how this current conflict will evolve, and prices could climb even higher. This time around, other worries are also colliding to push up precious metals prices, including high debt levels, concerns over the Federal Reserve’s independence, and questions about the sustainability of the artificial intelligence boom.’
Nervous investors continue to monitor developments closely, as the conflict risks further market volatility.
