Oil prices surge and Israeli shekel weakens as war between Hamas and Israel escalates
New York/Hong Kong – Oil prices surged and the Israeli currency fell at the start of the week as investors reacted to the ongoing war between Hamas and Israel. Despite Israel not being a major oil producer, escalating tensions in the oil-rich Middle East have spooked investors who had been selling off oil in recent weeks
Inflation, fears of a global economic downturn, and a correction to surging prices have caused US oil to drop from around $95 a barrel in late September to just above $80 last week. However, on Monday, US oil prices traded 4% higher, at just above $86 a barrel. Brent crude, the international benchmark, also saw an increase of almost 4%, trading at nearly $88 a barrel
Israel formally declared war on Hamas on Sunday after the Islamist militant group launched a deadly surprise assault on Saturday. The conflict has resulted in at least 900 deaths in Israel and over 550 Palestinians killed.
The Israeli shekel also weakened to 3.92 to the US dollar, its worst level since 2016. To stabilize the currency and ensure the proper functioning of markets, Israel’s central bank has announced it will sell up to $30 billion worth of foreign currencies, with an additional $15 billion of support available if needed.
Global investors initially feared that the conflict in Israel could spill over to the wider region and negatively impact the fragile global economic recovery, causing stocks to fall. However, US stocks, which initially fell on Monday morning, made a comeback in the afternoon, with the Dow rising 174 points, the S&P 500 adding 0.6%, and the Nasdaq Composite rising 0.4%. This midday reversal suggests that Wall Street is taking a wait-and-see approach to the risks the conflict could pose to financial markets.
European stocks also fell at the open but steadied, while Asian investors had a mixed initial reaction. The Shanghai Composite slipped 0.4%, Australia’s S&P/ASX 200 ended 0.2% higher, Hong Kong’s Hang Seng Index ticked up 0.2%, and markets in Japan and South Korea were closed for holidays.
The key question for markets now is whether the conflict remains contained or spreads to involve other regions, particularly Saudi Arabia. Analysts predict that markets will assume the situation will remain limited in scope, duration, and oil price consequences, but higher volatility can be expected.
Robert North and Krystal Hur contributed to this report.