Iraqi militia joins Iran-Israel war as crude surges 4%

Iraq's Islamic Resistance militia announced Sunday it would join military operations against Israel, broadening a conflict that has already drawn in Iran, Hezbollah and Yemen's Houthis and sent crude oil prices surging 4% as traders priced in the risk of supply disruptions across the Middle East.

"The expansion of the theater to include Iraqi militia forces signals that Iran's network of proxies is now fully mobilized," said Elena Fischer, geopolitical risk analyst at Edgen. "This is no longer a two-front conflict — it is a multi-axis escalation that directly threatens energy infrastructure and shipping lanes."

The announcement came hours after Iran launched roughly 10 missiles at northern Israel late Sunday — the first such barrage since a fragile US-brokered ceasefire took effect in early April — and Israel retaliated with strikes on military targets in western and central Iran, including the Karun petrochemical complex in Mahshahr. Powerful explosions were reported across Tehran, Isfahan, Tabriz and Karaj, according to Iran's Mehr News Agency. Israel also struck Beirut's Dahiyeh suburb, a Hezbollah stronghold, killing two people and wounding 17, Lebanon's state news agency reported.

Brent crude jumped 4% to trade above $78 a barrel in early Asian trading Monday, while Asian equity markets tumbled as much as 8%. Japan's Nikkei 225 fell 5.2% and South Korea's Kospi dropped 6.1%, tracking a broad risk-off move triggered by the prospect of a wider regional war. Gold rose 1.8% to $2,415 an ounce as investors sought safe havens. The VIX, Wall Street's fear gauge, climbed above 28 — a level not sustained since the initial Iran-Israel exchange in April.

The escalation threatens to unravel diplomatic efforts led by the Trump administration, which had been pushing for a comprehensive deal with Tehran. President Donald Trump said Sunday he was "very close" to a final pact and urged Israeli Prime Minister Benjamin Netanyahu not to strike back at Iran — a call Israel appears to have ignored. The US Embassy in Jerusalem ordered all government personnel to shelter in place and closed its consular sections in Jerusalem and Tel Aviv.

Yemen's Houthi rebels, also backed by Iran, claimed a missile attack on Israel and announced they would again target Israel-affiliated vessels in the Red Sea, a waterway that handles roughly 12% of global seaborne trade. Saudi Arabia sounded missile alerts near Prince Sultan Air Base, which hosts US forces, though no impacts were reported. Qatar's civil aviation authority denied social media claims of an airspace closure but confirmed it had activated alternative routing as a precaution.

The last time the region saw this level of multi-front coordination was during the 1973 Yom Kippur War, when a coalition of Arab states launched a coordinated assault on Israel. While the current configuration is different — Iran's network of non-state proxies rather than conventional armies — the breadth of the theater is historically unusual. During the April 2026 ceasefire period, Iran had largely refrained from direct strikes, and Iraqi militias had not been publicly activated.

For markets, the key variable is the Strait of Hormuz, through which about 21% of global oil consumption passes. Any disruption there — whether from Iranian threats, Houthi naval attacks, or collateral damage — could push Brent above $90 a barrel, according to traders. Options skew for Brent has shifted sharply to the upside, with the premium for out-of-the-money calls rising to its highest level since the Russia-Ukraine war began in 2022.

The next 48 hours are critical. If Israel continues its strikes on Iranian infrastructure and Iran retaliates with a second wave, the April ceasefire framework collapses entirely. If the US can reassert diplomatic pressure — Trump's leverage over Netanyahu and his willingness to offer sanctions relief to Tehran remain the two wild cards — the conflict may yet be contained. But the addition of Iraqi militia forces to the operational theater makes containment significantly harder.

This article is for informational purposes only and does not constitute investment advice.