The surprise attack on Israel by Hamas over the weekend and the resulting declaration of war by Israeli Prime Minister Benjamin Netanyahu are weighing on financial markets and unsettling commodity prices as the global economy braces for military and diplomatic fallout.
Stocks of energy and defense companies rose sharply Monday while shares of airlines and resorts tumbled as investors weighed reports of escalating military action.
Israeli Defense Minister Yoav Gallant announced on Monday a “complete siege” of the already blockaded Gaza Strip, pledging to block access to food, water, electricity or fuel for the 2 million residents living within.
Many Middle East commentators are also pondering the possibility of an Israeli ground invasion of the Gaza Strip. According to reporting by Axios, Netanyahu told President Biden in a call Sunday that Israel intends to begin a ground offensive inside Gaza in response to the attack.
Major U.S. stock indices opened lower on the news Monday morning, with the S&P 500 losing half a percentage point in early trading, falling to 4,285. The index closed up 0.6 percent at 4,334.
The technology-heavy Nasdaq Index was down more than 100 points to 13,321, before also closing up 52 points, and the Dow Jones Industrial Average dropped 85 points in early trading before rebounding to finish 197 points up.
International equities followed suit, with the German DAX falling 100 points in afternoon trading. The Shanghai Composite Index fell 0.44 percent to close at 3,096 on Monday.
A sharp increase in oil prices was a major force behind Monday’s market movements.
The price of a barrel of West Texas Intermediate crude oil jumped 4.31 percent to hit $86.36 after falling in recent weeks. Brent crude also popped more than 4.16 percent to reach $88.10 per barrel.
Concerns about retaliation toward oil-producing Iran for its support of Hamas have jostled energy markets. Iran has denied any involvement in the attacks on Israel, though a White House national security official said Iran is “broadly complict.”
Experts said oil prices are also rising over fears of violence spilling out beyond Gaza.
“The crude oil market remains hyper-alert to any indication that the conflict between Israel and Hamas is poised to expand into the oil producing region in the Middle East,” said Quincy Krosby, strategist for North Carolina-based LPL Financial, in a statement.
“Reports regarding Iran’s support for the Hamas attack have been denied by Iran but concern is focused on a broader Iran-Israeli conflict, which would, in turn lead to a dramatic escalation of conflict in the region, and a dramatic climb in oil prices,” Krosby said.
A 2022 report by the U.S. Energy Information Administration puts Iranian crude oil production capacity at 3.7 million barrels of oil per day. That number was restricted in practice to around 2.4 million barrels in 2021 by international sanctions, according to the Organization of Petroleum Exporting Countries (OPEC).
Stocks in industries with energy costs as a major component of their overhead, such as airlines, were hit hard Monday.
United Airlines and American Airlines stock were both down more than 5 percent in early trading Monday and finished the day more than 4 percent down.
Weapons makers and military contractors saw the opposite occur in their stock prices, with Lockheed gaining 8.93 percent to hit $436 a share, General Dynamics gaining 8.43 percent to reach $238 a share, and Northrop Grumman gaining more than 11 percent to hit $471 a share.
Precious metals, viewed by many investors as a safe haven during periods of geopolitical uncertainty, are also seeing a rise in prices.
Comex gold prices were up more than $31, or 1.7 percent, to $1,876 an ounce. Silver was up 1.39 percent to $22.03 an ounce, while platinum jumped more than 1 percent percent to $890.91.
The dollar also grew stronger amid the uncertainty, gaining on the euro and the sterling on Monday before subsiding. The dollar has been supercharged recently by high-flying U.S. Treasury yields, themselves bolstered by fiscal precarity in Congress following a narrowly avoided government shutdown and the ouster of former Speaker Kevin McCarthy (R-Calif.).
Longer-term economic implications of the Hamas attack are hard to foresee while the military response is ongoing and various diplomatic channels are activated.
President Biden pledged support for Israel in a Sunday night call with Netanyahu, and there have been broad bipartisan calls among lawmakers to boost military aid to the U.S. ally.