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Mid-East escalation brings geopolitical risks back to fore

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Tension gives battered safe-haven dollar a boost

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Sustained oil jump would create headache for cbanks,

analysts

say

By Amanda Cooper and Dhara Ranasinghe

LONDON, June 13 (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.

The dollar, which is down 10% against a basket of six others

this year, has traded virtually in lockstep with stocks since

Trump's April 2 "Liberation Day" unveiling of tariffs and

subsequent erratic approach to trade policy that has shattered

confidence in U.S. assets.

That relationship began to erode on Friday, as investors

embraced the dollar at the expense of stocks, crypto, industrial

commodities and currencies such as the safe-haven Swiss franc

and yen.

OIL SLICK

Brent crude oil prices were last up 7% at $75.54 per barrel

, were set for their biggest one-day jump since 2022,

when energy costs spiked after Russia's invasion of Ukraine.

"If we see oil prices moving towards $80 and above then that

becomes more of an issue for global central banks," said Chris

Scicluna, head of economic research at Daiwa Capital Markets.

Marlborough fixed income fund manager James Athey said there

was a risk investors may be too quick to take a lack of

ratcheting-up in tensions as a green light to dive back into

things like stocks.

"In general, markets tend to look through these sorts of

events quite quickly but of course therein lies the risk of

complacency," he said.

"The situation is genuinely tense and fraught and risk

assets are still priced for perfection," he said.