Oil flip-flops and shares are mixed after the US strikes Iranian nuclear sites

Global markets appeared to take the U.S. strike against nuclear targets in Iran in stride as investors watched Monday to see how Iran would react.

The price of oil initially jumped more than 2% but later fell back, losing about 0.4%. U.S. stock futures edged higher, and share benchmarks in Europe and Asia were mixed.

The big unknown is what Iran will do, analysts said, while the U.S. military’s strike on three Iranian sites raised urgent questions about what remains of Tehran’s nuclear program.

"I believe what we are thinking is or thinking is that it is going to be a short conflict. The one big hit by the Americans will be effective and then we’ll get back to sort of business as usual, in which case there is no need for an immediate, panicky type of reaction,” said Neil Newman, managing director of Atris Advisory Japan.

By early morning in London, the price of Brent crude oil, the international standard, had fallen 0.4% to $76.74 a barrel. U.S. crude also fell back, giving up 0.3% to $73.59 a barrel.

The attacks on Saturday raised the stakes in the war between Israel and Iran. The future for the S&P 500 gained 0.2% while that for the Dow Jones Industrial Average was up 0.1%. Treasury yields were little changed.

In Europe, Germany's DAX was nearly unchanged at 23,347.90, and the CAC 40 in Paris also was flat at 7,588.54. Britain's FTSE 100 was up less than 4 points at 8,778.96.

The conflict began with an Israeli attack against Iran on June 13 that sent oil prices yo-yoing and rattled other markets.

Iran is a major oil producer and sits on the narrow Strait of Hormuz, through which much of the world’s crude passes. Closing off the waterway would be technically difficult, but it could severely disrupt transit through it, sending insurance rates spiking and making shippers nervous to move without U.S. Navy escorts.

“The situation remains highly fluid, and much hinges on whether Tehran opts for a restrained reaction or a more aggressive course of action,” Kristian Kerr, head of macro strategy at LPL Financial in Charlotte, North Carolina, said in a commentary.

Iran may be reluctant to close down the waterway because it uses the strait to transport its own crude, mostly to China, and oil is a major revenue source for the regime.

Speaking to Fox News on Sunday, U.S. Secretary of State Marco Rubio said disrupting traffic through the strait would be “economic suicide" and would elicit a U.S. response.

"I would encourage the Chinese government in Beijing to call them about that because they heavily depend on the Strait of Hormuz for their oil,” Rubio said.

Tom Kloza, chief market analyst at Turner Mason & Co, said he expects Iranian leaders to refrain from drastic measures and oil futures to ease back after the initial fears blow over.

Disrupting shipping would be " a scorched earth possibility, a Sherman-burning-Atlanta move,” Kloza said.

Writing in a report, Ed Yardeni, a long-time analyst, agreed that Tehran leaders would likely hold back.

“They aren’t crazy,” he wrote in a note to investors Sunday. “The price of oil should fall and stock markets around the world should climb higher.”

Other experts weren't so sure.

Andy Lipow, a Houston analyst who has covered oil markets for 45 years, said countries are not always rational actors, and he wouldn't be surprised if Tehran lashed out for political or emotional reasons.

“If the Strait of Hormuz were completely shut down, oil prices would rise to $120 to $130 a barrel,” said Lipow. That would translate to about $4.50 a gallon at the pump and hurt consumers in other ways, he said.

“It would mean higher prices for all those goods transported by truck, and it would be more difficult for the Fed to lower interest rates.”

Much of East Asia depends on oil imported through the Strait of Hormuz. Taiwan's Taiex fell 1.4% while the Kospi in South Korea initially lost 1% but then regained some lost ground to fall 0.2% to 3,014.17.

In Tokyo, the Nikkei 225 edged 0.1% lower to 38,354.09, with gains for defence contractors, oil companies and miners helping to make up for broad losses.

“The U.S. strike on Iran certainly is very good for defence equipment,” Newman of Atris Advisory said, noting that both Japan and South Korea have sizable military manufacturing hubs.

Australia's S&P/ASX fell 0.4% to 8,475.90.

Hong Kong's Hang Seng regained lost ground, climbing 0.7% to 23,689.13, while markets in mainland China advanced with gains for energy companies. The Shanghai Composite index picked up 0.7% to 3,381.58.

In currency dealings, the U.S. dollar rose to 147.49 Japanese yen from 146.66 yen. The euro climbed to $1.1490 from $1.1473.