The fragile ceasefire between Israel and Iran, brokered by the United States in April, faced its first major test on Monday when Iran launched a barrage of ballistic missiles targeting Israeli military installations near Jerusalem and Haifa. The strikes marked the most direct confrontation between the two nations since the 2020 assassination of Iranian General Qasem Soleimani, raising immediate concerns over regional stability and energy markets.

Global benchmark Brent crude futures jumped to $94.80 per barrel in early Asian trading, wiping out nearly two weeks of price declines. Traders scrambled to assess supply risks as shipping lanes in the Strait of Hormuz, a critical oil transit chokepoint, came under renewed scrutiny. The Strait handles roughly 20% of the world’s seaborne oil, according to the U.S. Energy Information Administration.

Markets reacted swiftly, with Asian stock indexes sliding and safe-haven assets like gold and the Swiss franc gaining ground. Japan’s Nikkei 225 dropped 1.8% as investors priced in potential disruptions to Middle East energy flows. The U.S. Federal Reserve’s upcoming policy meeting, slated for next week, now faces added uncertainty as inflation risks tied to energy prices resurface.

U.S. Secretary of State Henry Walsh condemned the strikes, calling them a “clear escalation” and urging both sides to return to diplomatic channels. In a hastily arranged press conference, Walsh stated, “The ceasefire remains our best path forward, but provocations like these risk destabilizing the entire region.” The White House, meanwhile, dispatched additional naval assets to the Eastern Mediterranean to deter further aggression.

The strikes occurred just hours after Iran announced new uranium enrichment levels, further straining already tense nuclear negotiations. International Atomic Energy Agency inspectors confirmed Iran’s enrichment had reached 60%, a level experts warn could shorten breakout time to a nuclear weapon to weeks rather than months. This development added another layer of complexity to the crisis, as diplomats now face dual threats: direct military confrontation and a potential nuclear escalation.

Israel’s Prime Minister reaffirmed the nation’s right to self-defense but stopped short of announcing retaliatory strikes. “We are assessing the situation with our allies,” said a senior Israeli official who requested anonymity. “Our priority is to prevent further escalation while making it clear that aggression will not go unanswered.” The IDF reported intercepting several incoming missiles with its Arrow and David’s Sling defense systems, but damage assessments near Haifa remain ongoing.

Analysts at Goldman Sachs warned clients in an internal memo that if the crisis escalates into sustained conflict, Brent crude could breach $110 per barrel by year-end, with potential knock-on effects for global inflation. The bank’s base case, however, suggests a limited conflict would keep prices around $95–$100. “The market is pricing in a low-probability, high-impact event,” said a senior commodities strategist. “But the probability is no longer zero.”

Regional governments scrambled to contain fallout. Saudi Arabia, Iran’s largest regional rival, called for “maximum restraint” and offered to facilitate talks. The UAE, meanwhile, closed its airspace temporarily and urged citizens to avoid travel to Israel and Palestine. Egypt, which borders both nations, summoned its ambassadors from Tel Aviv and Tehran for urgent consultations.