Oil (BZ=F)

Oil prices surged on Tuesday after Iran fired a series of ballistic missiles at Israel after it began a ground invasion of southern Lebanon, pushing prices to the highest level in nearly one year.

West Texas Intermediate (CL=F) rose more than 5% to trade just below $72 per barrel. Brent (BZ=F), the international benchmark price, also climbed above 5% to above $75 per barrel.

Earlier in the day US officials warned that Iran is preparing to launch missiles against Israel following its invasion of southern Lebanon.

The American official said such a move by Iran would carry “severe consequences”. The IDF launched “limited, targeted” raids overnight, ratcheting up geopolitical tensions in the Middle East.

As tensions rise, market analysts are closely watching the risk of disruptions to oil production and exports, particularly if the conflict spreads or targets vital infrastructure in key oil-producing nations.

Any military escalation, particularly involving Iran, could severely impact oil exports, leading to sharp price increases. This has heightened anxiety among investors who fear that even a limited conflict could destabilise energy supplies at a time of already fragile global economic recovery.

"Oil prices have surged on the back of the news that Iran is preparing a direct attack on Iran. However, smart money knows that the current reaction and swollen price action is nothing more than a mosquito bite, and this is because we have seen several episodes of this fireworks," Naeem Aslam, chief investment officer at Zaye Capital markets, said.

"If a real threat were to occur, we would not see these mosquito bites, which have caused the prices to rise, but in fact, we would see the price flirting near the 100-dollar price mark." he added.

Pound (GBPUSD=X)

Sterling has struggled to find support against the US dollar, with the GBP/USD pair trading around 1.3345 at the time of writing. As the market gears up for the release of key US economic data, the greenback remained bolstered by less dovish comments from Federal Reserve chair Jerome Powell, applying pressure on the currency pair.

Investors will be watching the upcoming US ISM Manufacturing Purchasing Managers Index (PMI) for September, scheduled for release later today, alongside speeches from Fed officials Raphael Bostic and Lisa Cook.

Powell's remarks on Monday signalled the US central bank’s commitment to maintaining economic stability. He said that while the Fed remains patient in its approach, interest rates would be gradually reduced over time.