LONDON — From being just a fringe risk, conflict in the Middle East has become a top worry for investors unsettled by the prospect of a power struggle in Iran and a protracted regional war, with ramifications for everything from global trade to inflation.

US-Israel strikes killed Iranian Supreme Leader Ayatollah Ali Khamenei on Saturday, sowing chaos as Iran struck back at Gulf cities, airlines halted flights, and tankers carrying oil and other products suspended transit through the key Strait of Hormuz.

The first risk for markets is the uncertainty over what happens next in Iran, given the complexities of the Islamic Republic’s ruling system, the ideological nature of its support base, and the power of its Revolutionary Guards.

That then complicates the outlook for oil prices which have been rising for weeks, but are now hostage to what oil-producing countries do and how passage of tankers through the Middle East is affected, with big implications for inflation worldwide and even the safety of bonds hitherto deemed havens.

“Middle East tail risks have increased. Markets will reprice from geopolitical shock to regime risk shock, prolonged conflict, not just retaliation, unless Iran says it wants to negotiate,” said Rong Ren Goh, a portfolio manager in the fixed income team at Eastspring Investments in Singapore.

A bigger risk, analysts said, is complacency in markets that have assumed the fallout would be limited, like it was during last June’s “12-Day War” in Iran or during Russia’s numerous attacks on Ukraine, and dismissive of any comparisons to Iran’s 1979 regime change.

Brent crude jumped around 8% on Monday for a gain of nearly 30% so far this year, and investors have already purchased US Treasuries and gold as hedges for a variety of risks, including Middle East tensions and President Donald Trump’s erratic policies.

Gold had a record run last year and is up 24% so far in 2026. The main US stock index is up just 0.5%.

“History argues strongly in favor of selling geopolitical risk premium when hostilities start,” Barclays analysts said in a note on Saturday. “What worries us is that investors have now learned this pattern and might be underpricing a scenario where containment fails.”

Barclays analysts point to other factors that could exacerbate a selloff should the conflict escalate, such as existing concerns around the artificial intelligence boom and private credit markets.

“We would recommend not buying any immediate dip – risk-reward doesn’t seem compelling. If equities pull back enough, say over 10% in the S&P 500, there is likely to come a time to buy. But not yet,” they wrote.

WHAT’S SAFE?

Early on Monday, as oil gained, safe assets rose – with the dollar broadly higher, gold up about 1.6% and a bid for Treasuries. Benchmark Brent crude futures were up about 8.5% at $79.05 a barrel and S&P 500 futures fell 1%.

“The markets are prepared for a limited surgical strike. What is not priced in is a major strike to decapitate the regime,” said Charles Myers, chairman and founder of Signum Global Advisors, a geopolitical investment consulting firm. He was speaking before the weekend US-Israel strikes.

William Jackson, chief emerging markets economist at Capital Economics, expects a prolonged conflict affecting supply could cause oil prices to jump to around $100, potentially adding 0.6-0.7 percentage points to global inflation.

“In my view, the market has already been overestimating inflationary forces, so I don’t think this will change much. There will be more impact on Europe than US given the closer proximity of Hormuz oil and gas post-Russia,” said Tariq Dennison, a wealth adviser at Zurich-based GFM Asset Management.

“Maybe a slight short term uptick on gold, but gold has already priced in maximum geopolitical uncertainty.”

Eastspring’s Goh pointed to the steady drop in US yields, which has brought 10-year yields to below 4%.

“I’m not sure if buying US Treasuries here is a good trade, especially if oil prices spike and induce inflation, if this thing drags,” he said.

On the other hand, some analysts expect Iran will not be able to disrupt trade in the Gulf region and the impact on oil prices will be contained.

“We wouldn’t be surprised if any selloff in the S&P 500 on Monday morning turns into a rally, driven by expectations of lower oil prices once the latest Middle East war ends,” said Ed Yardeni, president of New York-based Yardeni Research.

“The price of gold might also round-trip on Monday. Bond yields might fall due to both safe-haven demand and post-war prospects for lower oil prices,” he said. — Reuters

JERUSALEM/TEL AVIV/DUBAI — Israel launched a new wave of strikes on Tehran on Sunday and Iran responded with more missile barrages, a day after the killing of Supreme Leader Ali Khamenei pitched the Middle East and the global economy into deepening uncertainty.

US and Israeli strikes – and Iranian retaliation – sent shockwaves worldwide through sectors from shipping to air travel to oil, amid warnings of rising energy costs and disruption to business in the Gulf region.

US President Donald Trump said the attack was intended to ensure Iran could not have a nuclear weapon, to contain its missile program and to eliminate threats to the United States and its allies. The US has hit more than 1,000 Iranian targets since the start of the campaign, US Central Command said.

In a video statement posted to his Truth Social site, Mr. Trump vowed military strikes will continue until “all our objectives are achieved.” He said the assault had wiped out Iran’s military command and destroyed nine Iranian navy ships and a naval building.

Mr. Trump said the Iranian military and police should lay down their arms, promising immunity for those who surrender and threatening “certain death” for those who resist. He reiterated calls for the Iranian people to revolt against the government.

“I call upon all Iranian patriots who yearn for freedom to seize this moment, to be brave, be bold, be heroic and take back your country,” Mr. Trump said in the pre-recorded video. “America is with you.”

Earlier in an interview with the Atlantic magazine, Mr. Trump said Iran’s leadership wanted to talk to him and he had agreed.

In a separate interview with the Daily Mail, he said the military campaign against Iran could continue for the next four weeks.

But the Republican president is yet to lay out his longer-term aims in Iran, which faces a power vacuum that could leave it in chaos, with unforeseeable consequences for the region.

The first US casualties of the campaign, including the deaths of three service personnel, were confirmed on Sunday.

Mr. Trump paid tribute to the three killed as “true American patriots” but warned that there will likely be more casualties. “That’s the way it is,” he said.

With the vital Strait of Hormuz closed and the Gulf cities of Dubai, Abu Dhabi, and Doha under bombardment, the scale of the risk taken by Mr. Trump in attacking Iran months before US midterm elections that will decide control of Congress is becoming clearer.

Only around one in four Americans approve of the operation, according to a Reuters/Ipsos poll on Sunday. And if Hormuz – the passage for about 20% of world oil supplies – remains closed for more than a few days, US consumers will start to feel the pressure on prices at the pumps.

EXISTENTIAL CHALLENGE FOR IRAN

The Israeli military said late on Sunday that its air force had established aerial superiority over Tehran, and that a wave of strikes across the capital had targeted intelligence, security, and military command centers.

Israel’s present focus is to undermine the Iranian government so that it collapses, an Israeli official said on condition of anonymity, adding that Israel “is acting in its own ways” to get Iranians to take to the streets.

Iran’s Revolutionary Guards said on Sunday they had hit three US and UK oil tankers in the Gulf and the Strait of Hormuz, and attacked military bases in Kuwait and Bahrain with drones and missiles. Shipping data showed hundreds of vessels including oil and gas tankers dropping anchor in nearby waters with traders expecting sharp jumps in crude oil prices on Monday.

Global air travel was also heavily disrupted as continued air strikes kept closed major Middle Eastern airports, including Dubai – the world’s busiest international hub – in one of the biggest aviation interruptions in recent years.

In Iran, facing its biggest existential challenge since the 1980-88 war with Iraq, President Masoud Pezeshkian said a leadership council composed of himself, the judiciary head and a member of the powerful Guardian Council had temporarily assumed the duties of Supreme Leader.

Oman’s foreign ministry said Iranian Foreign Minister Abbas Araqchi had indicated Tehran was open to de-escalation. But in a post on X, Mr. Araqchi suggested Iran was ready to keep fighting.

“We’ve had two decades to study defeats of the US military to our immediate east and west,” he wrote. “Bombings in our capital have no impact on our ability to conduct war.”

It remained unclear what the longer-term prospects were for Iran to rebuild its leadership and replace the 86-year-old Mr. Khamenei, who had held power since the death of the founder of the Islamic Republic, Ayatollah Ruhollah Khomeini in 1989.

Russian President Vladimir Putin denounced Mr, Khamenei’s death as a cynical murder and China’s Foreign Minister Wang Yi described it as “blatant killing”.

Israel, which has pressed successive US administrations to take action against Iran, claimed responsibility for killing Mr. Khamenei while he was in his central leadership compound in Tehran, and showed no signs of curbing its attacks.

“We have the capabilities and the targets to keep going on for as long as necessary,” Israeli military spokesperson Lieutenant Colonel Nadav Shoshani said.

IRAN HITS BACK

As Iran fired renewed missile barrages across the region, air raid sirens sounded across Israel late on Sunday, warning of the latest incoming attack, including in Tel Aviv, where projectiles were seen streaking across the night sky.

Israel’s ambulance service said nine people were killed in the town of Beit Shemesh, the United Arab Emirates said Iranian attacks killed three people, and Kuwait reported one dead.

Inside Iran, some grieved for Mr. Khamenei while others celebrated his death, exposing a deep fault line in the stunned country.

Thousands of Iranians were killed in a crackdown authorized by Mr. Khamenei against anti-government protests in January, the deadliest wave of unrest since the Islamic Revolution of 1979.

Mr. Khamenei, who built Iran into a powerful anti-US force and spread its sway across the Middle East during his 36-year iron-fisted rule, was working in his office at the time of Saturday’s attack, state media said. The raid also killed his daughter, grandchild, daughter-in-law, and son-in-law.

Experts said that while his death and those of other Iranian leaders would deal Iran a major blow, it would not necessarily spell the end of Iran’s entrenched clerical rule or the sway of the elite Revolutionary Guards over the population.

His death sparked protests among Shi’ites in neighboring Pakistan, where police clashed with demonstrators who breached the outer wall of the US consulate in Karachi, leaving nine people dead. In Iraq, police fired tear gas and stun grenades to scatter hundreds of protesters who gathered outside the Green Zone in Baghdad, where the US Embassy is located. — Reuters