LONDON - World stock markets tumbled on Friday and oil prices surged as Israel launched a military strike on Iran, sparking a rush into safe havens such as gold, dollar and Swiss franc.

An escalation in the Middle East – a major oil-producing region – adds uncertainty to financial markets at a time of heightened pressure on the global economy from US President Donald Trump's aggressive and erratic trade policies.

Market reaction was swift.

Crude oil jumped as much as 14 percent at one point to almost $79 a barrel, before pulling back to around $74 – still up more than 5 percent on the day and set for the biggest one-day jump since 2022. US oil futures rose over $5 to $73.14.

Gold, a classic safe-haven at times of global uncertainty, rose to $3,416 per ounce, bringing it close to the record high of $3,500.05 from April.

The rush to safety was matched by a dash out of risk assets. US stock futures fell over 1.5 percent, European shares dropped 1 percent at the open and in Asia, major bourses in Japan, South Korea and Hong Kong fell over 1 percent each.

"Clearly the big question is how far does this go?," said Chris Scicluna, head of economic research at Daiwa Capital Markets in London, referring to the Middle East tension.

"The market has got it right in terms of stocks down, oil and gold up."

Israel launched wide-scale strikes against Iran, saying it targeted nuclear facilities, ballistic missile factories and military commanders during the start of a prolonged operation to prevent Tehran from building an atomic weapon.

Iran had launched about 100 drones towards Israeli territory in retaliation, which Israel is working to intercept, an Israeli military spokesman said.

Washington said it was not involved in the Israeli offensive.

The developments mean another major geopolitical tail risk has now become a reality at a time when investors are wrestling with major shifts in US economic and trade policies.

"The geopolitical escalation adds another layer of uncertainty to already fragile sentiment," said Charu Chanana, chief investment strategist at Saxo, adding that crude oil and safe-haven assets will remain on an upward trajectory if tensions continue to intensify.

The Israeli shekel fell almost 2 percent and long-dated dollar bonds for Israel, Egypt and Pakistan slipped.

Safe-haven rush

US Treasuries were bought in the rush for safer assets, sending the yield on 10-year notes to a one-month low of 4.31 percent. Bond yields move inversely to prices.

Germany's 10-year bond yield touched its lowest level since early March at around 2.42 percent.

Daiwa's Scicluna said a further push higher in oil prices could dampen expectations for central bank rate cuts.

"The ultimate response in bond markets to geopolitics is going to depend on how sharp the rise in energy prices is going to be," he said.

Some traders were attracted to the dollar as a haven, with the dollar index up 0.6 percent to 98.277, retracing most of Thursday's sizeable decline.

Still, the dollar is down 1 percent for the week in a sign that sentiment towards the greenback remains bearish.

The Swiss franc briefly touched its strongest level against the dollar since April 21, before trading 0.2 percent lower at around 0.8118 per dollar.

Fellow safe haven, the Japanese yen edged down 0.2 percent to 143.79 per dollar, giving up earlier gains of 0.3 percent.

The euro was down 0.4 percent at $1.1534, after rising on Thursday to the highest since October 2021.

Sterling slipped 0.4 percent to $1.3556, after marking a fresh high since February 2022 at $1.3613 early in the day.

"Traders are now on edge over the prospects of a full-blown Middle East conflict," said Matt Simpson, a senior market analyst at City Index.

"That will keep uncertainty high and volatility elevated."