Oil prices soared and stocks sank Friday after Israel launched strikes on Iran, prompting retaliation from Tehran and stoking fears of a full-blown war.

Oil futures surged more than 13 percent at one point before recouping gains of nearly seven percent, reigniting concerns about a potential resurgence in inflation.

After a down day in Europe and Asia, Wall Street indices spent the entire day in the red before closing down more than one percent.

“After having a pretty solid run in May and the first part of June, markets found an excuse to take some profits,” said Art Hogan, chief market strategist of B. Riley Wealth.

Shares in major airlines tumbled after flights around the Middle East were suspended.

Safe haven investment

The dollar climbed higher, while gold — viewed as a safe haven investment — was close to its record high of above $3,500 an ounce set in April, having added around 30 percent since the start of the year.

The drop in equities and rise in safe-haven assets “all go to show just how fragile sentiment remains in the face of major geopolitical events,” said David Morrison, senior market analyst at financial services provider Trade Nation.

“The question now is whether investors view this flare-up as a relatively contained incident within the longstanding animosity between Israel and Iran, or if this is the spark that ignites a conflagration across the Middle East and then beyond?”

On Friday, Iran fired a barrage of ballistic missiles at Israel in a counter-strike just hours after the Israeli strikes targeting the Islamic Republic’s nuclear facilities and bases.

Air raid sirens and explosions rang out across Israel after Prime Minister Benjamin Netanyahu took to the airways to issue a word of caution, saying he expected “several waves of Iranian attacks” in response.

Smoke could later be seen billowing above the skyscrapers in downtown Tel Aviv, according to an AFP journalist, as Iran’s Revolutionary Guards said they had attacked dozens of targets in Israel.

While Friday was a decisively negative day for equities, analysts described the selling as orderly.

Investors “are paring back some risk, but this is hardly a panicky sell-off,” said Steve Sosnick of Interactive Brokers.

The market is partially in “a wait and see approach to what happens over the weekend because it’s obviously a very fluid volatile situation,” Sosnick added.

But further escalation would add more upward pressure to oil prices.

Matthew Ryan, head of market strategy at global financial services firm Ebury, said: “The big fear for investors is that an escalation to the tensions will not only raise the risk of a prolonged conflict, but it could disrupt Iranian oil production.”

Rising oil prices have “broader implications,” Ryan said, noting that they “could both weigh on the global growth outlook and keep inflationary pressures higher for longer.”

This would complicate the decision-making of major central banks, which will have to decide between raising interest rates to curb inflation or cutting them to stimulate economies.