Amanda Cooper and Dhara Ranasinghe
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By Amanda Cooper and Dhara Ranasinghe
LONDON (Reuters) -Investors' worst-case scenario of a full-blown Middle East conflict is coming into view, unleashing a flood of capital out of risk assets and into classic safe-havens, topped once more by the dollar.
Israel on Friday said it had launched a strike against nuclear facilities and missile factories in Iran and killed a swathe of military commanders in what could be a prolonged operation to prevent Tehran building an atomic weapon.
Oil, which accounts for roughly 30% of global energy demand, soared - gaining almost 14% at one point - along with gold, while government bond yields fell briefly. Shares, near record highs, also declined, led by airlines.
"This is a dangerous situation," said Francois Savary, chief investment officer at Genvil Wealth Management in Geneva. "This is one of those situations where everything is under control and then everything is not under control."
Iran is one of the world's largest exporters of crude. It also borders the Strait of Hormuz, a critical choke-point through which roughly a fifth of daily global consumption flows and which Iran has previously threatened to close in retaliation to Western pressure.U.S. President Donald Trump suggested Iran, which promised a harsh response, had brought the attack on itself by resisting U.S. demands in talks to restrict its nuclear programme, and urged it to make a deal, "with the next already planned attacks being even more brutal".
In markets, focus returned the real-world implications of the flare-up.
Investors and central banks alike have been wrestling with the direction of interest rates from here, given the likely upward hit to consumer prices and growth from U.S. tariffs.
Friday's strikes by Israel added to that dilemma, given the surge to 5-1/2 month highs in the oil price. U.S. Treasuries struggled to gain much of a safe-haven tailwind, leaving 10-year yields holding steady on the day around 4.36%.
DOLLAR BACK
The dollar, which for weeks has borne the brunt of investor risk aversion, again took up the mantle of ultimate safe haven.
"The dollar is reverting to that traditional role of safe haven, which we haven't seen for months," City Index strategist Fiona Cincotta said.
"We've got the equities markets coming lower in the safe-haven, risk-off trade and giving the dollar some much-needed boost from the lows that it was trading at."
The S&P 500 fell 0.7% in early trade on Friday, but remained near record highs struck in February.
