Israel attacks Iran: Stocks drop, oil prices surge more than 6%

Stocks fell along with equity-index futures as investors rushed to the safety of haven assets after Israel attacked Iran's nuclear program sites in a major escalation of tensions in the Middle East. Crude oil jumped as much as 9.3%.

Contracts for US equities retreated around 1.5% as Israel's Prime Minister said the operation "will continue for as many days as it takes to remove this threat." Asian stocks dropped 0.4%. Treasuries advanced with the 10-year yield dropping three basis points to 4.33%. The yen strengthened 0.2% to 143.16 against the dollar and gold rose over 1%. Bitcoin and Ether led a drop in cryptocurrencies.

West Texas Intermediate crude traded at $73.39 a barrel, which is 28% more than a low hit in early May. Oil is on course for the biggest weekly gain since 2022. The moves erased the losses for this year, driven by the fall-out from global trade tensions and a decision by OPEC+ to revive shuttered capacity at a faster-than-expected clip.

Israel attacked Iran in a major escalation in the standoff over Tehran's atomic program. The move came amid renewed questions about diplomatic efforts to resolve tensions over Iran's atomic work. US and Iranian negotiators are scheduled to hold a sixth round of talks in Oman on Sunday, but President Donald Trump said this week he's less confident about the chances of a deal.

The attack is "poised to echo through global markets"-not just as a geopolitical flashpoint, but more as a stark wake-up call," said Hebe Chen, an analyst at Vantage Markets in Melbourne. "Investors now have to face the mounting threat of multi-front tensions, where potential new hot wars and intensifying trade wars collide, reshaping risk sentiment in real time."

Israel declared a state of emergency after conducting the "preemptive strikes," Israeli Defense Minister Israel Katz said.

Israel's move came after repeated warnings by Israeli Prime Minister Benjamin Netanyahu about striking Iran and crippling its nuclear program. Earlier on Thursday, Iran had said it would inaugurate a new uranium-enrichment facility in response to censure by the UN atomic watchdog over its nuclear program.

Israel is already involved in a major military operation in Gaza where it's been bombarding and blockading the civilian population for the past 20 months as it tries to destroy Hamas following the group's deadly attack on the Jewish state on Oct. 7, 2023.

"Headlines of an Israeli air strike inside Iran have reignited the geopolitical-risk premium," said Charu Chanana, chief investment strategist at Saxo Markets. "Any sign of retaliation or supply disruption would keep volatility elevated and push oil and safe-haven assets higher."

US Secretary of State Marco Rubio said the US is not involved in the air strikes and Israel took unilateral action against Iran.

A gauge of the dollar rose 0.2% after initially falling on the report. The currency hit a three-year low Thursday.

Bloomberg Macro Strategist Mark Cudmore says:

The US is the world's largest oil producer. Given that the greenback had only just hit a fresh multi-year low, downside stops got cleaned out and the short-term market will get caught offside by a bounce, which means it may become a self-sustaining climb higher.