- author, Mariko oy
- Role, Business reporter
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Oil and gold prices jumped after US officials said that an Israeli missile struck Iran.
Brent crude, the international benchmark, rose 1.8% to $88 a barrel, while gold briefly approached a record high before retreating to nearly $2,400 an ounce.
Investors are closely watching Israel's response to Iran's direct drone and missile attack last weekend.
There are fears that the escalation of the conflict in the Middle East will disrupt oil supplies.
Oil prices had jumped by up to 3.5% initially. However, the gains declined after Iranian state media claimed that there was “no damage” in Isfahan province where there were reports of explosions.
Sharp and persistent rises in oil prices threaten to fuel inflation. Countries depend heavily on the commodity used to produce fuel, such as gasoline and diesel.
Fuel and energy prices have been the main driver behind rising costs of living around the world in the past two years.
“The concern for markets would primarily be inflation, which would actually increase inflation,” Randeep Somil, fund manager at M&G Investment Management, told the BBC's Today programme.
While the pace of inflation is slowing, in the UK it is still above the Bank of England's 2% target, and some economists predict that interest rate cuts may not happen until the summer or later in the year.
“In the UK, inflation rates remain at around 3.2% – still somewhat off target – and have become a concern for policy makers,” Summel said.
“It is good to see that this has not escalated further and we hope that the disruption in the markets is short-lived.”
The price of gold often rises during times of uncertainty as it is seen as a safe investment.
Rising tension in the Middle East has led to concerns about whether shipping through the Strait of Hormuz between Oman and Iran will be affected.
It is a vital shipping route, through which about 20% of the total global oil supply passes.
Members of the Organization of Petroleum Exporting Countries (OPEC) – Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq – send most of the oil they export through the strait.
Iran is the seventh largest oil producer in the world, according to the US Energy Information Administration, and the third largest member of OPEC.
Energy market expert Vandana Hari of Vanda Insights said the initial rise in oil prices was a “knee-jerk reaction to fears of a renewed escalation of the war between Israel and Iran.”
She added: “What recent events confirm is the increasing fragility and volatility of the situation in the Middle East.”
Stock markets fell as investors reacted to recent events. In the United Kingdom, the FTSE 100 index fell 0.4% while the FTSE 250 index fell 0.8% in early trading.
In Asia, Japan's Nikkei 225 fell 2.7%, while Hong Kong's Hang Seng fell 0.9%. South Korea's Kospi closed down 1.6%.
