(Bloomberg) -- Israel and Iran continued intense bombardments of one another for a third day, with growing international concern the conflict will spread across one of the world’s key oil-producing regions.
On Sunday, Israel reported a new wave of missile attacks from Iran, just hours after the previous one, and that it was carrying out simultaneous strikes on Tehran. Since Friday, 13 people have been killed in Israel by Iranian strikes and 380 injured, Israel’s emergency services said. At least 80 people in Iran have been killed, according to the government.
Israel’s Defense Minister Israel Katz said his country’s targets now include the “regime in Tehran.”
Middle Eastern stock markets, including those in Saudi Arabia, Egypt and Qatar, mostly dropped on Sunday, while the Egyptian pound weakened around 1.8% to beyond 50 per dollar in local trades. Israeli equities rose, led by defense company Elbit Systems Ltd.
The tit-for-tat followed reports of explosions across Iran on Saturday, including one at a natural gas plant linked to the giant South Pars field. While Iran exports little gas and Israel appears not to have targeted its oil fields or crude-shipment facilities, the move risks pushing up global energy prices — which soared on Friday — even more.
The United Nations’ atomic watchdog, meanwhile, reported that multiple strikes on Iran’s uranium-conversion facility at Isfahan, south of Tehran, resulted in serious damage.
The enmity between Israel and Iran turned into their most serious conflict yet on Friday morning, when Israel struck Iran’s nuclear and military sites using jets and drones. Attacks on Iran’s defenses seem to have given Israel air superiority over the Islamic Republic, including over the capital.
The Israeli military on Sunday urged Iranians to “immediately evacuate” areas near weapons-production facilities and “not return until further notice.”
Iran now faces an existential dilemma. It can’t afford to appear weak. But its options are narrowing and its proxy groups — such as Hezbollah in Lebanon — have limited ability to support the Islamic Republic, with Israel having severely hit them over the past year in conflicts sparked by Hamas’ assault on Oct. 7, 2023.
On Sunday, Iran targeted Israel’s infrastructure and energy facilities around the city of Haifa, according to state media. Israel advised its residents to remain in bomb shelters for a brief period, while forces tried to intercept the projectiles.
Prime Minister Benjamin Netanyahu said his military would “strike at every site and every target of the Ayatollah regime,” while Iran’s Supreme Leader Ayatollah Ali Khamenei has said Israel will “pay a very heavy price.”
The conflict sent shockwaves through global markets on Friday, with oil surging 7% and investors buying haven assets such as gold. The MSCI World Index of developed-country stocks dropped the most since April.
Iran canceled its next round of nuclear talks with the US scheduled for Oman on Sunday. American President Donald Trump, who is seeking an accord that would curb Iran’s nuclear activities in return for sanctions relief, said on social media that “this war in Israel-Iran should end.”
On Sunday morning, Trump reiterated that the US wasn’t involved in Israel’s attacks and said he could still get a nuclear accord with Iran.
He’s set to meet other leaders of the Group of Seven major economies in Canada and the conflict will be at the forefront of their talks. Israel is calling on Washington and European nations to help it attack Iran, arguing that is what’s needed to stop Tehran developing a nuclear weapon.
Trump, who has warned Iran to agree on a nuclear deal “before it is too late,” has not yet indicated if the US will join Israel in striking Iran.
For all that Israel’s already damaged Iranian atomic sites and says it will continue to strike them, many Western analysts say it needs US help to destroy some key facilities located deep underground.
Middle Eastern leaders and Russian President Vladimir Putin are voicing increasing concern that the conflict could spiral out of control. They have urged both sides to calm the situation quickly.
Germany’s Foreign Minister Johann Wadephul, speaking to local broadcaster ARD, urged regional states to talk with Iran, while Berlin continues engaging with Israel.
Germany, France and the UK are, he said from Qatar, ready to negotiate with Iran over its nuclear program.
Wider fighting — particularly any targeting of American military or diplomatic facilities in the region — may help Iran’s rulers rally political support domestically. But it would dramatically intensify the dangers they face.
It’s unclear if Tehran is entertaining last-resort options such as attacking tankers in the Strait of Hormuz, through which Middle Eastern states ship about a fifth of the world’s oil.
Generals Killed
That type of action may draw the US, the world’s most powerful military, into the conflict, something Tehran has probably calculated it can’t afford, according to Bloomberg Economics analysts. That’s partly because the Iranian economy is already weak, with inflation at almost 40%, and public frustration with the government is high.
Several top Iranian generals and nuclear scientists were killed and key military infrastructure was badly damaged in Israel’s opening strikes on Friday.
On Saturday, four sites in the East Azerbaijan province were struck, as was Tehran’s Mehrabad International Airport — where the air force has a base and the national carrier is headquartered — according to Iranian media.
Israel also hit the defense ministry and several residential buildings in the capital’s suburbs, in addition to an oil depot to the west of the city, according to the local reports.
--With assistance from Fadwa Hodali, Dan Williams, Srinivasan Sivabalan, Selcan Hacaoglu, Michael Gunn and Sonja Wind.
(Updates with markets in first, fourth paragraphs.)
