Unrest in the Middle East again, retaliatory attack on Iran. What about oil?

The most important event in recent hours was Israel's attack on Iran in retaliation for last weekend's attack. According to both sides, the attack was not significant, but it led to significant market movements, which in turn were neutralized during the start of the session in Europe. Will the market prepare for further actions that may lead to even greater movements at the opening on Monday? Is this the end of the conflict?

Israel's reprisal attack

American media report that Israel decided to launch a retaliatory attack on Iran and carried out a drone strike on a military base near the city of Ishafan. Iran indicates that air defense was activated, but there was no significant damage to the infrastructure. However, Iran indicates that I don't want the current situation to escalate and does not plan an immediate response to Israel's actions. In turn, Israel says that today's attack in the morning was a demonstration that it is also capable of attacking targets in Iran.

Although there are many indications that this may be the end of the escalation of the situation between Israel and Iran, it is difficult to take into account Iran's lack of desire for another taunt. Of course, markets are clearly reducing previous moves. Petroleum was gaining close to 5%, but now the movement is reduced to just 1%. We also observed a significant strengthening of the dollar and yen, but the currencies returned to pre-attack levels. The USD/PLN pair also rose to 4,11 at some point, but is currently around 4,08.

Will Iran decide to block the Strait of Hormuz?

It is worth remembering, however, that Iran could theoretically decide in retaliation to block the Strait of Hormuz, through which up to 20% of the world's oil flows, which could lead to huge movements in the commodity markets. On the other hand, yes a blockade could lead to the involvement of the American or British side, which is excluded at the moment.

Just after 9:00, EUR/USD is trading at 1,0660. In turn, we pay PLN 4,0790 for the dollar, PLN 4,3430 for the euro, PLN 5,0732 for the pound, and PLN 4,4922 for the franc.

Source: Michał Stajniak CFA, XTB