US strikes 2 targets in Iran after drone attack on ship

The US military struck two targets inside Iran on Friday, retaliating against what President Donald Trump called an "unwarranted" drone attack on a commercial cargo ship in the Persian Gulf, according to CNN. The operation marks the first direct US military action on Iranian soil since the 2020 strike that killed Qassem Soleimani.

"The strikes were calibrated to degrade Iran's capability to conduct further attacks while avoiding escalation to a broader conflict," a senior US defense official told CNN, speaking on condition of anonymity. The official said the operation targeted facilities linked to the drone program used in Wednesday's attack.

Brent crude surged as much as 4.2% to $89.70 a barrel on the news before paring gains to trade near $87.50, as traders priced in the risk of supply disruptions from the Strait of Hormuz, a chokepoint that handles about 21% of global oil consumption. Gold rose 1.8% to $2,368 an ounce, while the 10-year US Treasury yield fell 8 basis points to 4.12% as investors rotated into safe-haven assets. The S&P 500 dropped 1.3% in afternoon trading, with the energy sector the sole gainer.

The strikes threaten to escalate the most serious confrontation between Washington and Tehran since the 2020 Soleimani strike, when Iranian retaliation sent oil above $70 a barrel and triggered a 5% equity selloff over two weeks. Iran's response — whether measured or escalatory — will determine if the conflict remains contained or draws in regional allies and disrupts the 17 million barrels of oil that transit the Strait of Hormuz daily.

Oil Risk Premium Pushes Brent Above $89

The drone attack on Wednesday struck a Marshall Islands-flagged cargo vessel, causing damage but no casualties, according to US Central Command. Trump said the attack violated a ceasefire brokered earlier this year, though details of that agreement remain undisclosed. The US has maintained a naval presence in the Persian Gulf since the ceasefire took effect, with the Pentagon estimating that Iran has launched at least 12 drone or missile attacks on commercial shipping over the past 18 months.

Markets Price a Range of Scenarios

The options market reflected heightened uncertainty, with the CBOE Volatility Index climbing 3.6 points to 22.8, its highest level in three months. The risk premium on Iranian crude — the discount Iranian heavy crude trades at relative to Brent — widened to $6.50 a barrel from $4.20 before the attack, indicating that traders expect further disruption. Defense stocks rallied, with Lockheed Martin gaining 2.8% and RTX adding 1.9%, as investors anticipated increased military spending in the region.

The last time the US conducted direct strikes on Iranian assets was in February 2024, when it hit Iran-linked targets in Syria and Iraq after a drone attack killed three US soldiers. In that instance, oil rose 3% over three days before retreating, and the S&P 500 recovered its losses within a week. The key difference this time is the location: strikes on Iranian soil, rather than proxy forces, raise the probability of a direct Iranian response.

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