Although US President Donald Trump said attacks against Iran will continue "until all of our objectives are achieved" in a video address last night, many market observers do not expect fighting to continue for long.

The conflict is likely to have a "sharp but short-lived" impact on oil and gas prices, says George Lagarias, chief economist at Forvis Mazars.

Oil prices are now up 30% since last December and year-on-year positive for the first time since December 2024.

"This has less to do with Iran’s productive capacity (only 3% to 5% of global production), some of which OPEC+ suggested it can quickly make up for, and more to do with the effective closing of the Straits of Hormuz," he points out.

"Our base case is that the region and energy markets have prepared for the present eventuality, and it is a matter of time before contingency plans become operational that would allow oil to flow beyond Iranian chokepoints.

"However, if there are unwelcome surprises, prolonged energy market volatility could have a very quick effect on US inflation, whose consistently lower-than-expected numbers have, thus far, mitigated some of the more acute consequences of the trade wars.

"Similarly, higher energy prices could hurt already sluggish GDP growth in Europe and the UK."

Some details on commodity price moves.

Brent crude oil is up almost 10% to just under $80 a barrel, with US WTI rising 9% to just over $73 a barrel.

UK natural gas prices are up 25% to 98.5p per therm, not far from spikes in January, which were the highest in 10 months.

Gold is up 2.4% to above $5,400 an ounce, not far from its record high in January. Silver is up 1.7% to $95.4/oz.

Copper prices are down 0.7%, with coal and steel down too, with iron ore flat.

The FTSE 100 has dropped 82 points to 10,828 in initial trades at the start of the week, with airlines, hotels, banks and retailers driving the downside.

British Airways owner IAG is the biggest faller, down 9.78%.

It is followed by events organiser and business data supplier Informa, down 6.7%, and hotelier IHG, down 5.3%.

Barclays, easyJet, Standard Chartered, HSBC and Burberry are next, all down over 4%.

Risers are led by defence companies, with BAE Systems rising 6.9%, followed by precious metals miner Endeavour, up 5.6%, and oil and gas producers Shell and BP, both up over 5%.

The Competition and Markets Authority has launched an investigation into Intercontinental Hotels, Hilton and Marriott over suspected sharing of sensitive commercial information through a data provider.

The watchdog said it is examining whether the hotel groups used the STR analytics platform, owned by OnTheMarket parent CoStar, to exchange “competitively sensitive information”. CoStar is also under investigation.

At this stage, the regulator stressed that “no assumptions should be made about whether the law has been broken”.

The probe falls under the Competition Act 1998. After gathering evidence, the CMA may issue a statement of objections if it provisionally concludes competition law has been breached.

Smith & Nephew reported a strong finish to 2025, with profits and cash flow rising as it completed its three-year turnaround plan and reiterated confidence in its plans for faster growth.

Fourth quarter revenue rose 8.3% to $1.7 billion, or 6.2% on an underlying basis, meaning full-year revenue increased 6.1% to $6.2 billion, with underlying growth of 5.3%.

Operating profit climbed 20.7% to $794 million and trading profit rose 15.5% to $1.2 billion, with trading margins rising to 19.7% from 18.1%.

For the 2026 financial year, the group expects underlying revenue growth of around 6% and organic trading profit growth of around 8%, which will be slightly diluted by a recent acquisition.

House price growth held steady in February, with annual growth unchanged at 1.0% and prices rising 0.3% month on month, according to fresh data from Nationwide.

The average home cost £273,176, up from £270,873 in January.

Robert Gardner, Nationwide’s chief economist, said the figures point to “a modest recovery after a dip at the end of 2025”, which had likely reflected uncertainty ahead of the Budget.

Transactions in 2025 were 10% higher than in 2024. First-time buyer mortgage completions rose 18%, helped by improved affordability and easier access to credit. Home mover activity increased 15%, while buy-to-let purchases remained subdued.

While oil and gas prices have spiked, the initial reaction to the fighting in the Middle East has been relatively muted, says market analyst Chris Beauchamp at IG.

Oil price gains "appear contained for now", he says, "as we wait to see if shipping through Hormuz can continue at lower levels or will be blocked entirely.

"Oil and gas infrastructure in the region has not yet been extensively targeted, keeping oil well south of the $100 barrel range that many expected as a result of the weekend."

Stock market losses so far in Asia are not massive as "investors have had one eye on the possibility of war for weeks", Beauchamp says.

"But with Trump saying the campaign could run for four weeks, there is plenty of scope for more downside should the conflict widen to encompass oil and gas infrastructure, a move that would likely see oil make further progress towards three figures.”

Kathleen Brooks at XTB notes that the gold price is higher by more than 2%, the dollar is the top performing G10 currency and sovereign bonds are expected to attract fresh inflows later this morning.

"For such an unprecedented global event, the moves so far in financial markets have been moderate," she says, but cautioning that "this is a highly fluid situation and headline risk looms large for asset prices this week".

The FTSE could take losses but remain an outperformer, Brooks says.

"Airline stocks, hotels and holiday companies are all expected to see large declines in their share prices, as travel to the region remains closed."

"In contrast, defense stocks are likely to surge. Although futures suggest that the FTSE 100 will open lower today, the UK index is set to be an outperformer, as the proliferation of defense names and oil majors help to prop up the index."

The FTSE 100 is likely to drop sharply at the start of the week as markets react to the US and Israel's war on Iran and counterstrikes that have been fired into several Gulf states.

London's blue-chip share index is expected to start around 85 points lower, after a week when it gained over 230 points or 2.2% to finish at 10,917.4.

Oil producers Shell and BP are likely to receive a boost from a surge in oil prices, with Brent crude up 9% to $79.36 a barrel – the highest since the start of last year.

Asia-Pacific markets have plunged overnight, with the Hong Kong and Singapore indices falling over 2%, while India's Sensex and Japan's Nikkei have dropped 1.8% and 1.35% respectively.

US futures are in the red, too, with the Nasdaq called 1.8% lower, while futures for both S&P 500 and Dow Jones are down around 1.5%.

The US and Israel launched air strikes on Iran in the early hours of Saturday, including the reported assassination of the country’s supreme leader and other senior officials, which was followed by retaliation from Iran with missiles and drones attacking sites across the region, including Qatar, United Arab Emirates, Saudi Arabia, Bahrain and Kuwait. The fighting came two days after US-Iran nuclear negotiations ended without a breakthrough, even though Iran was said to have agreed to degrade its current stockpiles of nuclear material.