San Francisco Frontiers - Crude surges, stocks dive as Houthi attacks escalate Iran war

As the conflict moved into its fifth week, the spectre of a widening conflict grew as Yemen's Houthi rebels on Saturday said they had fired "a barrage of cruise missiles and drones" at strategic sites in Israel.

The strikes raised concern about the war spreading to the Red Sea, with Saudi Arabia rerouting much of its oil exports there to avoid the Strait of Hormuz, through which 20 percent of crude and gas passes and has been effectively closed by Tehran.

The news sent the price of oil to its highest level since earlier in the month after the United States and Israel began their campaign against Iran. Both main contracts jumped more than three percent at one point, with Brent hitting close to $117 a barrel.

Adding to the dour mood were Donald Trump's remarks to the Financial Times (FT) that he wanted to "take the oil in Iran" and could take the country's Kharg Island "very easily".

Kharg Island, located off the west coast of Iran, is a vital oil terminal for the country and is being eyed by the Pentagon for ground operations, though the United States insisted it would stop short of a full-scale invasion.

"Maybe we take Kharg Island, maybe we don't. We have a lot of options," he told the FT. "It would also mean we had to be there for a while."

While Pakistan said Sunday it was ready to broker and host "meaningful talks" between Washington and Tehran to end the war, Iran's parliament speaker Mohammad Bagher Ghalibaf said the United States was "secretly planning a ground attack".

The surge in oil prices and the prospect of an extended conflict put more pressure on equities amid fears about a surge in inflation that could hit the world economy.

Tokyo sank more than four percent and Seoul more than three percent, while Hong Kong, Shanghai, Sydney, Singapore, Wellington, Taipei, Jakarta and Manila were also sharply down.

The losses followed a bad day on Wall Street, where all three main indexes tumbled after the United States and Israel struck Iranian nuclear sites.

"The market is now reacting to higher crude pricing and towards the fallout in the economic consequences," wrote Pepperstone's Chris Weston.

"Higher short-term inflation expectations, volatility in the interest rate markets, and growing concerns around supply shortages/inventory and the subsequent impact on the March/April economic data series and corporate earnings is now front and centre," he added.

"The Houthi's ability to disrupt shipping through the Bab al-Mandab Strait, which accounts for roughly 12 percent of global trade, is the new key risk" he said, referring to the waterway between Yemen and the Horn of Africa.

"Any meaningful disruption, married with a sharp rise in insurance costs, could drive another leg higher in crude and further pressure risk assets."

The selling came after a relatively calm period last week after Trump delayed until next month a threatened attack on Iran's energy infrastructure citing progress in talks with Tehran.

Skye Masters at National Australia Bank said: "Trump's decision to extend the pause in Iran's energy sector... has clearly not been enough to support investor sentiment where the focus is turning to the global economic impact of such a shock -- this is now not just about the price of oil it includes fertilizer, petrochemicals, metals."

- Key figures at around 0230 GMT -

West Texas Intermediate: UP 3.0 percent at $102.61 a barrel

Brent North Sea Crude: UP 3.2 percent at $116.15 a barrel

Tokyo - Nikkei 225: DOWN 4.6 percent at 50,936.13 (break)

Hong Kong - Hang Seng Index: DOWN 1.9 percent at 24,479.15

Shanghai - Composite: DOWN 0.7 percent at 3,886.86

Euro/dollar: DOWN at $1.1506 from $1.1517 on Friday

Pound/dollar: DOWN at $1.3249 from $1.3272

Dollar/yen: DOWN at 159.87 yen from 160.20 yen

Euro/pound: UP at 86.84 pence from 86.78 pence

New York - Dow: DOWN 1.7 percent at 45,166.64 (close)

London - FTSE 100: DOWN less than 0.1 percent at 9,701.95 (close)

N.Wilson--SFF