What we know as markets brace for disruption

The United States and Israel launched their most aggressive offensive yet against Iranian targets over the weekend, killing the Islamic State’s longtime supreme leader Ayatollah Khamenei and plunging the region into a widening conflict as Tehran retaliates with airstrikes across the Middle East.

As investors prepare for the impact when markets open after the weekend, here’s what we know so far.

Iranian state media announced Khamenei’s death early Sunday morning.

President Trump made the biggest foreign policy gamble of his presidency ahead of November’s midterm elections, calling the killing “the Iranian people’s best chance to take back their homeland.”

President Trump also warned on Truth Social that “intensive, pinpoint bombing will continue uninterrupted all week long, or as long as necessary to achieve our goal of peace in the Middle East and the entire world!”

The president said Saturday that the aggressive strikes are aimed at ending a decades-old threat from Iran and ensuring it stops developing nuclear weapons.

Iran retaliated with an unprecedented series of attacks across the Middle East, targeting Israel as well as several neighboring countries that host U.S. military bases.

In Israel, sirens and cell phone alerts sent people rushing into air raid shelters as Iran launched a series of missile barrages, most of which were intercepted.

Explosions were also reported in the United Arab Emirates, Jordan, Qatar, Bahrain and Saudi Arabia, and footage showed people fleeing smoke-filled hallways at Dubai International Airport.

Drone attacks have caused damage and injuries at Dubai International Airport and Abu Dhabi’s Zayed International Airport.

This comes after Iran’s Foreign Ministry said in a statement on Saturday that the country would “not hesitate” in responding to the US-led attack. Separately, an Iranian military spokesperson reportedly warned that “this will teach Israel and the United States a lesson they have never seen in their history.”

Meanwhile, President Trump warned Tehran against further retaliation, threatening in a post on Truth Social on Sunday that if Iran continues its attacks, “we will attack them with force we have never seen before.”

When markets reopen after the weekend, investors are bracing for risk-off trades, with potential gains in so-called safe-haven assets such as the U.S. dollar and gold, while stocks could fall.

As an indication of how the market will react, on the 24/7 crypto exchange HyperLiquid, oil-related perpetual swap futures rose nearly 5% to $71.7 per barrel, while gold rose about 1.2% to $5,334 per troy ounce.

Bitcoin was rattled in the first few hours after the bombing began on Saturday, but has since recovered some of its losses and closed 1.8% higher at $66,725. The cryptocurrency fell to $66,325 as of 4:48 a.m. ET on Sunday.

Oil market participants are closely monitoring the conflict, which risks a major oil supply shock in the Middle East.

Bob McNally, a former White House energy adviser to former President George W. Bush, predicted that without any signs of easing tensions, future prices for oil could rise by $5 to $7 a barrel at the start of trading at 6 p.m. ET.

Iran is the fourth largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC), and there are concerns that the Strait of Hormuz, the narrow waterway connecting the Persian Gulf and the Arabian Sea, will become unsafe for commercial traffic. This could send oil prices soaring above $100 per barrel, McNally said.

More than 14 million barrels per day will pass through the Strait in 2025, representing one-third of global seaborne crude oil exports. About three-quarters of those barrels were sent to China, India, Japan and South Korea. China, the world’s second-largest economy, receives half of its crude oil imports through the Strait.

The key question for the market is: What happens next?

Investors are already underestimating geopolitical risks, Eric Robertsen, head of global research at Standard Chartered, said in a note.

Although the U.S. dollar has remained modestly weaker since the beginning of the year, commodity-linked currencies have outperformed, which speaks to behind-the-scenes dispersion, he said, suggesting markets are paying a price for exposure to scarce resources and terms of trade winners.

Ben Emmons of Fedwatch Advisors argued that the leadership attack in Tehran increases the tail risk of regime change and leaves the endgame uncertain. He said markets could oscillate between easing risk-on if a regime collapse removes the threat of an oil blockade or nuclear escalation, or continuing risk-off if the conflict drags on and supply disruptions intensify.

The immediate pressure point may be energy. Analysts believe that if oil prices continue to rise, they will hit Asia’s oil-importing economies the hardest, with rapid spillover through inflation expectations.

As trading resumes, how oil prices and the US dollar trade against Asian currencies will be the first real signals of how deeply this shock is priced in.

Due to widespread closed airspace in the Middle East, airlines canceled hundreds of flights and rerouted dozens of others mid-flight. Some services have been suspended until at least the end of next week.

Travel disruptions have spread to Brazil and Australia. The airspace closure also forced airlines to suspend flights that normally fly through the area.

More than 1,800 flights to and from Middle Eastern countries were canceled on Saturday, and another 1,400 on Sunday, according to aviation data firm Cirium.

Qatar Airways announced it would temporarily suspend all flights, and Dubai-based Emirates announced that services at Dubai International Airport, one of the world’s busiest airports, had been suspended.

—CNBC’s Spriha Srivastava, Spencer Kimball, Pippa Stevens and Leslie Josephs contributed to this article.