Major share indexes slipped in Asia on Monday and oil prices briefly hit five-month highs as investors anxiously waited to see if Iran would retaliate against US attacks on its nuclear sites, with resulting risks to global activity and inflation.
Most of the market moves were restrained, with the dollar getting a modest safe-haven bid and no sign of a rush to bonds. Oil prices were up around 1.5%, but well off their initial peaks.
Optimists were hoping Iran might back down now that its nuclear ambitions had been curtailed, or even that regime change might bring a less hostile government to power there.
"Markets may be responding not to the escalation itself, but to the perception that it could reduce longer-term uncertainty," said Charu Chanana, chief investment strategist at Saxo.
"That said, any sign of Iranian retaliation or threat to the Strait of Hormuz could quickly shift sentiment and force markets to reprice geopolitical risk more aggressively."
The Strait of Hormuz is only about 33 km (21 miles) wide at its narrowest point and sees around a quarter of global oil trade and 20% of liquefied natural gas supplies.
Analysts at JPMorgan also cautioned that past episodes of regime change in the region typically resulted in oil prices spiking by as much as 76% and averaging a 30% rise over time.
"Selective disruptions that scare off oil tankers make more sense than closing the Strait of Hormuz given Iran’s oil exports would be shut down too," said Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia.
"In a scenario where Iran selectively disrupts shipping through the Strait of Hormuz, we see Brent oil reaching at least $100/bbl."
Goldman Sachs warned prices could temporarily touch $110 a barrel should the critical waterway be closed for a month.
For now, Brent was up a relatively mild 1.4% at $78.07 a barrel, while US crude rose 1.4% to $74.88.
Elsewhere in commodity markets, gold edged down 0.3% to $3,357 an ounce.
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