Oil and gold prices rise as US says Israel attacked Iran

Oil and gold prices fell after Iranian officials downplayed reports of an Israeli attack.

Brent crude, international benchmark, Fell after jumping for a while After reports of an attack above $90 a barrel emerged.

Gold neared a record high before settling below $2,400 an ounce.

There are concerns that the worsening conflict in the Middle East could disrupt oil supplies.

Investors are closely watching Israel's reaction to last weekend's live drone and missile strikes by Iran.

Oil prices initially rose as much as 3.5%. But Brent later fell to around $87 a barrel after Iranian state media said there was “no damage” in Isfahan province, where the explosions allegedly took place.

A sharp and sustained rise in oil prices risks fueling inflation. Countries rely heavily on raw materials to produce fuels like petrol and diesel.

Fuel and energy prices have been a major driver behind the rising cost of living globally over the past two years.

Randeep Somal, fund manager at M&G Investment Management, told the BBC's Today programme: “The concern for the markets will be mainly on inflation, which will actually increase inflation.”

While inflation is slowing, in the UK it is still above the Bank of England's 2% target, and some economists predict a cut in interest rates won't happen until the summer or later.

“In the UK, inflation rates are still at 3.2% – still some way off target – and this is a concern for policymakers,” Mr Somel said.

“It's good to see that it doesn't escalate further and that the disruption to markets is short-lived.”

Brent prices are well below the highs reached when several major economies imposed sanctions on the oil-producing nation after Russia invaded Ukraine in February 2022.

Oil hit $125 a barrel in the weeks that followed, leading to higher household energy bills.

Considered a safe investment, the price of gold often rises during uncertain times.

Rising tensions in the Middle East have raised concerns that shipping between Oman and Iran through the Strait of Hormuz will be affected.

It is an important shipping lane as 20% of the world's total oil supply passes through it.

Members of the oil producer cartel OPEC – Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq – send most of their oil exports through the strait.

According to the US Energy Information Administration, Iran is the world's seventh largest oil producer and the third largest member of OPEC.

The initial spike in oil prices was “a knee-jerk reaction to fears of renewed war between Israel and Iran,” said Vandana Hari, energy market expert at Vanda Insights.

“What recent events underscore is the increased fragility and instability in the Middle East situation,” he added.

Stock markets were mixed as investors reacted to recent events.

In the U.S., the Dow Jones industrial average was roughly 0.5% higher in early trade, while the S&P 500 was flat and the Nasdaq was 0.6% lower.

In the UK, the FTSE 100 share index was down 0.25% in afternoon trade, while the FTSE 250 was down 0.6%.

In Asia, Japan's Nikkei 225 index fell 2.7%, while Hong Kong's Hang Seng fell 0.9%.