Oil and gas prices rose on Monday and airline shares fell amid widespread flight cancellations as markets reacted to the surprise attack on Israel by the militant group Hamas.
Investors appeared to be pricing in the prospect of more instability in the Middle East, given the warning from the Israeli prime minister, Benjamin Netanyahu, that his country was embarking on a “long and difficult war”. The death toll has passed 1,100 since fighting started on Saturday and is rising.
Although Israel does not produce oil, concerns are growing that the conflict could exacerbate uncertainty in the region and affect the major producers Iran and Saudi Arabia. There could be further sanctions for Iran if it emerges that it aided Hamas in the attack. The conflict may also derail a deal normalising relations between Israel and Saudi Arabia that reports had suggested could have led to the latter increasing its oil output.
Oil prices jumped by 4% by the time markets closed in London, with futures prices for Brent crude oil, the North Sea benchmark, at $88 (£72), recovering some of the losses of the previous week.
Gas prices also rose after Israel’s energy ministry ordered the shutdown of the Tamar natural gas field off the country’s coast. News of the shutdown pushed the European month-ahead gas benchmark up as much as 14.1% to €43.62 per megawatt hour. The UK day-ahead gas price soared by 19.5% to 95p a therm, with the month-ahead contract up 15% at 108.65p a therm.
The fossil fuel firms BP, Shell and Harbour Energy all rose in value on Monday, closing up 2.9%, 2.6% and 4.9% respectively. Shares in the London and Tel Aviv-listed oil and gas group Energean plunged by almost a fifth, making it Europe’s worst-performing stock on the day, although the company said its operations had not been affected by the fighting.
Israel’s central bank stepped in to support its currency after the shekel fell to a near eight-year low against the US dollar in early trading. The Bank of Israel said it would sell up to $30bn of foreign currency in the open market to maintain stability, helping the shekel to recover slightly.
Airlines were among the biggest fallers on Monday, with a number of airlines responding to the conflict by stopping flights to Tel Aviv’s Ben Gurion airport, Israel’s main international travel hub.
They included the US carriers Delta, American Airlines and United Airlines – which have each experienced a fall in market value of about 5% in early trading on Wall Street – plus Air Canada, Lufthansa and Air France.
British Airways changed its daily flights from Heathrow to Tel Aviv so they depart in the morning instead of the afternoon. It is understood this is to avoid crew having to stay overnight. A spokesperson said a flexible booking policy had been implemented so travellers can change their travel dates if they wish.
Ryanair, Europe’s biggest carrier by customer numbers, has cancelled all flights to Israel until at least Thursday, the budget carrier Wizz Air cancelled all flights to Tel Aviv until further notice, and easyJet cancelled flights on Sunday and Monday, adding it would alter its schedule for the rest of the week.
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About 16% of flights into and out of Ben Gurion on Monday were cancelled, according to the data company FlightAware.
The share price of the BA owner International Airlines Group was down 6.1%, while easyJet fell by 5.8%. The Paris-listed Air France-KLM lost 7.8% and Germany’s Lufthansa lost 4.3%.
However, defence company shares strengthened in response to the fighting. BAE Systems rose by 4.5%, making it the biggest riser on the FTSE 100. The company makes a wide range of weaponry, from tanks and fighter jets to ammunition and missiles.
The German tankmaker Rheinmetall rose by 6.5%, while the Italian defence and aerospace company Leonardo gained 4.8%.
Wall Street’s S&P 500 index of US-listed companies dipped o.2% in early trading, although defence and oil stocks rose. The US-based Northrop Grumman soared 11%, while Lockheed Martin rose 7.9%. The oil services firm Halliburton gained 6.7%, with Marathon Oil climbing 4.9%.