LONDON - Oil prices calmed on Wednesday following an early surge due to concerns that global oil supplies may be disrupted after Iran fired rockets at military bases in Iraq hosting United States forces, raising the prospect of a regional conflagration that could disrupt oil supplies.
Stocks were still down for the day but had erased some earlier losses as tweets by US President Donald Trump and Iran's foreign minister appeared to signal a period of calm - for now.
Brent crude futures were up 97 cents or 1.4 percent to $69.24 by around 04:03 GMT, after earlier rising to $71.75, the highest since mid-September 2019.
West Texas Intermediate crude futures climbed 82 cents, or 1.3 percent, to $63.52 a barrel. It earlier reached a high of $65.85, the most since late April last year.
"What we have seen is a very limited air strike on bases in Iraq and that has been somewhat a relief to the markets," said Abid Ali, Al Jazeera's economics editor.
"Initially we saw the markets fall by 2.2 percent in Japan, but that has recovered. We expected US markets to open lower by possibly about 1.7 percent but futures have pared back. And all of this is because of President Trump's latest tweet - that 'all is well' - which has sort of calmed things down," he said.
Iran launched an attack on US-led forces in Iraq, the US military said on Tuesday, adding that Tehran fired more than a dozen rockets from Iranian territory against at least two Iraqi military bases hosting US-led coalition personnel.
In response, Trump tweeted: "Missiles launched from Iran at two military bases located in Iraq. Assessment of casualties & damages taking place now. So far, so good!"
The attacks follow the US killing of Iranian military commander Qassem Soleimani in Iraq last week. Iran had promised a severe response.
Attention has turned to the Straits of Hormuz in Iran, through which 34 million barrels of oil are shipped to the US every month, Al Jazeera's Ali said.
"If there had been an attack on or a blockage of the straits, then we would see oil prices shoot up to $150 a barrel and that would be catastrophic for the global economy. But what we have seen is a very limited air strike on bases in Iraq and that has been somewhat a relief to the markets," he said.
"Things have calmed down and hopefully it will remain that way," Ali added.
The price of gold initially shot past $1,600 per ounce ($45,359.20 per gramme) on the spot market but later pared gains to trade at $1,593.56 per ounce ($45,176.63 per gramme), as investors rushed to safe-haven investments
Although Asian shares and US treasury yields plunged on Wednesday as investors feared that military action between Iran and the US could escalate, they later clawed back some losses.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.5 percent around 04:45 GMT, having dropped more than 1 percent earlier in the day. China's blue-chip CSI300 index was 0.48 percent lower.
Japan's Nikkei was down 1.29 percent, also paring earlier losses of more than 2 percent, while Australian shares clawed back from a more-than-1 percent drop to shed 0.18 percent. US S&P500 e-mini stock futures, which had earlier tumbled nearly 1.7 percent, were down 0.28 percent.
"It's a very classic risk off" market response, said Rob Carnell, Asia-Pacific chief economist at ING in Singapore.
"This is the Iranian response to the killing of Soleimani. We now have to see what the US response to the Iranian response is. This looks as if it could escalate," he said.
The sharp sell-off in riskier assets, which includes stocks, was accompanied by steep drops in US Treasury yields as investors flocked to safety. Benchmark 10-year Treasury notes yielded 1.7188 percent, down more than 10 basis points from a US close of 1.825 percent on Tuesday.
"If you see US treasuries rallying a bit this morning, expect them to rally quite a bit further should there be a forceful response from the US, which I'd imagine there would be ... from a market perspective I think this one could run and run," Carnell said.
The US dollar also plunged against the yen, with the Japanese currency touching its strongest point against the greenback since October. The US currency was last down 0.69 percent against the yen at 107.67.
The euro gained 0.1 percent on the day to $1.1161.(FA)
