The worsening situation in the Middle East will cause volatility in the short term, but it will not be a "show stopper" for generally strong financial markets here and around the world, a local market commentator says.
Iran struck back at the United States for the killing of a top Iranian general, firing a series of surface-to-surface missiles at an Iraqi air base housing US troops and warning the United States and its allies in the region not to retaliate.
Iran state TV said Tehran had launched "tens" of missiles at Iraq's Ain Assad air base over America's killing of general Qassam Soleimani.
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US stock futures initially slumped along with Asian equities and oil prices surged after Iran started an attack on military facilities in Iraq hosting American troops, escalating tensions in the Middle East.
"It's obviously disconcerting for investors and that's why you have seen a move to more safe haven assets such as US Treasuries, gold, the yen and high risk assets, like equities, go down," Craigs Investment Partners head of private wealth research, Mark Lister, said.
"That's a natural reaction when you see an issue like this arise," he said.
While oil prices did tick up, the rise was not as big as many might have expected, due mostly to the huge increase in oil production in the United States over recent years.
"What's different to previous oil shocks is that the US is self sufficient in oil and is one of the world's biggest oil producers in its own right," he said.
Lister, noting weakness in sharemarkets here and the world, said stocks were due for selloff after last year's record-breaking run.
"I don't think it's a show stopper. I think that it's something that will utlimately blow over. At this stage, it does not look like something that will develop into a major military conflict," he said.
Nevertheless, he expected to see more volatility in the financial markets over the next few weeks.
"Ultimately, it's not going to be a major driver of markets over the medium term," he said.
In New Zealand, the benchmark S&P/NZX50 index was down by 1 per cent at 11,508 late in the afternoon.
The modest decline was put down to the highly defensive nature of the local market, which is dominated by big utiltities and property companies.