Oil prices jump and markets slide after strikes across Middle East

Dan Coatsworth, head of markets at AJ Bell, said: “The uncertainty factor reigns again.

“Scenes in the Middle East have caused widespread nervousness across financial markets.

“The US attacks on Iran have caused oil prices to soar amid fears of disruptions to supplies, pushing up costs for businesses and consumers.

“That ranges from costing more to fill up the car to making it more expensive to run factories.

“If the issues persist then the market will start to worry about new inflationary pressures and that could lower expectations for near-term interest rate cuts.

“Central banks hold or raise rates in the fight to bring inflation lower.

“Financial markets typically prefer lower rates to higher ones, and any prospect of rates staying put or even going up would be taken as a negative for share and bond prices.

“A higher cost of borrowing would be negative for consumer and business sentiment, and feed into slower economic growth.

“While these scenarios will be front of mind, investors might be taking one day at a time while they try to ascertain if this is a short, sharp event or one that could drag on for ages.

“Staying calm and not making knee-jerk reactions to investment portfolios is important.

“There is no reason to panic and sell investments at the first sign of trouble.

“Equity markets are in the red following the weekend events, but they are only giving up a small portion of recent gains.

“History suggests that staying invested through both good and bad times is better than trying to time the market.

“Just look at how concerns around AI spending and industry disruption haven’t derailed financial markets.

“Certain pockets have seen setbacks, but many places have continued to push higher in recent months as there was still enough good news coming from the broader corporate world to keep investors happy.

“It’s common to see people adding supposed safe-haven investments in times of stress, and that trend is in play now.

“Areas like gold, US Treasuries, defensive sectors like utilities and tobacco, cash, money market funds, and real assets such as infrastructure are all classic safe-haven territories.

“Defence contractors also sit in this pack when the worry issues are related to geopolitical tensions, as is the case now.

“BAE Systems jumped seven per cent in early trading as investors potentially took the view that worrying events in the Middle East could prompt governments around the world to further boost defence spending.

“Gold rose by three per cent to $5,418 per ounce, which is a large one-day movement but not enough to take the precious metal to a new record high.

“The intraday record high was $5,594 per ounce on January 29 2026.

“The FTSE 100 fell by one per cent, less than half than other major market indices in Europe, thanks to its large weighting towards oil producers, gold miners and defence contractors.

“A higher oil price is good for BP and Shell’s earnings, while a stronger gold price implies greater profit potential for Fresnillo and Endeavour Mining.

“Airline stocks fell as a sharp increase in the oil price is bad for costs and disruption to air traffic is bad for sentiment towards the sector. British Airways’ owner IAG fell seven per cent.”