US Strike on Iranian Nuclear Facilities Could End Iran-Israel Conflict

Crude and Brent prices spiked higher following the US’s involvement in the Middle East conflict, with risk aversion and higher oil prices providing conflicting directions for the FTSE.

Did US Strikes Destroy Iran’s Nuclear Programme?

The US carried out “Operation Midnight Hammer” against three key nuclear sites in Iran, Fordow, Isfahan, and Natanz, which was first social media post. In the immediate aftermath, conflicting reports surfaced about the degree of damage the attacks caused, with Trump claiming a "complete obliteration", running through to Iranian officials saying their uranium stocks had not been affected. Some reports revealed that trucks were seen leaving the key Fordow nuclear site the day before, implying ahead of the strikes.

as traders attempted to gauge the potential reaction from Iran, with risk aversion driving most stock market futures on Monday into negative territory. However, risk appetite made a gradual recovery, as there was no immediate retaliation from Iran. Officials stated that the US strikes would likely lead to retaliation, although they did not provide specific details. Some reports said that Iran could activate "sleeper" terrorist cells in the US. Others are expecting a potential missile strike on US bases in the region, in a mirror image of the killing of Qasem Soleimani during the first Trump administration. Despite the US warning against such strikes, the communication from American officials seems to heavily suggest that the US does not want to get further involved in the conflict unless it is responding to Iranian retaliation. Israeli PM Benjamin Netanyahu also said that after the US strike, with Iran having previously declared that it would stop launching missiles at Israel when Israeli attacks stop.

Is this the End or the Beginning of Escalation?

One of the main concerns in the oil markets is the closure of the Straits of Hormuz, which , with the Iranian Parliament authorising that action. However, approval to make such a move ultimately resides with the Iranian Security Council. Notably, only around 15% of the oil going through the Strait , with around 50% being shipped to China. China is also Iran's largest buyer of crude.

As for the market reaction, it is based on , as that could lead to more American involvement. The FTSE 100 managed to decouple from global markets once again as gains in oil majors BP and Shell helped keep the index in balance despite a general risk aversion. With the main market worry seemingly centred on a disruption in oil supplies, continued tensions in the Middle East could support the UK's premier index. However, the strike corresponds to an inflection point, after which the FTSE 100 could revert to its trend.

FTSE Mixed, in Consolidation Phase

The Footsie declined to 8672 on Friday, reached an oversold level on the RSI and reversed to the 200-period moving average near 8740, where it currently trades after forming what appears to be a double bottom with 8600. While this is the first time in a while that the index trades below the 200-period average on the 4-hour timeframe, bullish price action could send prices to 8825 and the peak of 8910. This may open the door to the 9000 handle, achieving a new record high on the way. On the downside, a reduction in risk appetite could weigh on prices, exposing the round 8500 support outside the lower range.

Source: SpreadEx / UK100

Key Takeaways

The US’s strikes on key Iranian nuclear sites have led to a surge in crude oil prices and risk aversion in global markets. However, the extent of damage to Iran's nuclear programme remains unclear. Although Iran has threatened retaliation, potentially through "sleeper" terrorist cells or missile strikes on US bases, raising concerns about further escalation and potential disruption to oil supplies through the Strait of Hormuz that could prompt more US involvement. The Footsie has decoupled from global markets due to gains in oil majors, with tensions potentially supporting the index in the short term but also leading to a reversal of its recent uptrend if risk aversion intensifies.