Israel hits Tehran; Iran appoints Alireza Arafi to lead interim council

Iran has named senior cleric Ayatollah Alireza Arafi to its interim Leadership Council following the death of Supreme Leader Ayatollah Ali Khamenei.

A spokesperson for the Iranian Ministry of Foreign Affairs confirmed to MS Now that Arafi was elected alongside President Masoud Pezeshkian and Chief Justice Gholamhossein Mohseni Ejei to oversee the supreme leader’s duties until a permanent successor is chosen.

Reuters, citing the ISNA news agency, reported that Arafi, a member of the Guardian Council and Assembly of Experts, will help guide the clerical republic through its constitutional transition.

Oil markets are bracing for a possible supply shock after U.S. strikes on Iran over the weekend reignited fears that flows through the Strait of Hormuz could be disrupted.

While analysts expect an immediate “knee-jerk” reaction to oil prices when trading resumes in New York on Sunday evening, the bigger question is whether tensions could escalate into a sustained interruption of Gulf exports. 

“At this point, it seems we are looking at a full-scale military conflict between the U.S. and Iran, which would be unprecedented and the trajectory impossible to assess,” said Vandana Hari, CEO of energy research firm Vanda Insights.

Brent crude settled at $72.48 on Friday, bringing its year-to-date gain to about 19%. U.S. West Texas Intermediate (WTI) closed at $62.02, up roughly 16% so far this year.

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— Lee Ying Shan

Investors are bracing for risk-off trades once markets reopen after the weekend, as the conflict in the Middle East widens.

Gains are expected in so-called safe-haven assets like the U.S. dollar and gold, while equities could pull back.

Oil market participants have been closely watching the conflict, which risks a major oil supply shock in the Middle East.

Markets could swing between risk-on relief — if regime collapse removes the threat of oil blockades or nuclear escalation — and risk-off persistence if conflict drags on and supply disruptions intensify, according to Ben Emons of FedWatch Advisors.

Airlines have canceled hundreds of flights, while dozens of others were rerouted mid-flight due to closed airspace over a large swath of the Middle East. Airspace closures also forced carriers to scrub flights that would normally transit the region.

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—Anniek Bao

Iran’s internet been down for more than 24 hours, an online traffic monitoring organization said Sunday.

“The measure limits civic engagement at a key moment for the country’s future after the killing of Ayatollah Khamenei in US and Israeli airstrikes,” NetBlocks said in a post on X.

Israel said Sunday it has carried out more strikes against Iran’s government in the capital.

“The Air Force, guided by Military Intelligence, has now launched a broad wave of strikes toward targets of the Iranian terror regime in the heart of Tehran,” the Israel Defense Forces said in a post on X.

“Over the past day, the Air Force conducted extensive strikes to achieve air superiority and open the path to Tehran,” the IDF said.

—Azhar Sukri

Iran woke up Sunday to a once-in-a-generation shock: state media confirmed Supreme Leader Ayatollah Ali Khamenei was killed in a joint U.S.–Israel strike.

For markets, the key question is what comes next.

Standard Chartered’s Global Head of Research, Eric Robertsen, said in a note that investors had already been underpricing geopolitical risk. The U.S. dollar is only modestly weaker year-to-date, but the dispersion beneath the surface is telling: commodity-linked currencies are outperforming, suggesting markets are paying for exposure to scarce resources and terms-of-trade winners.

Ben Emons of FedWatch Advisors adds a high-volatility geopolitical lens. Leadership strikes in Tehran raise regime-change tail risks and leave an uncertain endgame. Markets could swing between risk-on relief — if regime collapse removes the threat of oil blockades or nuclear escalation — and risk-off persistence if conflict drags on and supply disruptions intensify.

The immediate pressure point may be energy. A sustained surge in crude prices would quickly ripple through inflation expectations and hit Asia’s oil-importing economies hardest, analysts say.

As trading resumes, investors will be watching oil prices and the U.S. dollar versus Asian currencies for the first real signal of how seriously this shock is being priced in.

—Spriha Srivastava

Markets in the Middle East opened lower on Sunday due to regional tensions.

Shares in Muscat opened lower as investors withdrew funds, indicating market fear that the weekend’s events would turn into a protracted conflict after Israel and the U.S. attacked Iran, and the Islamic Republic retaliated across Arab and Gulf cities.

Muscat’s main index, the .MSX30, tumbled more than 3% in Sunday trade. The country was not targeted by the Islamic Republic as it played a key mediation role in talks between the U.S. and Iran in recent weeks. Oman’s foreign minister took to X to express his “dismay” at the joint strikes on Iran by the U.S. and Israel, saying “active and serious negotiations have yet again been undermined.”

Kuwait’s stock exchange implemented a trading suspension until further notice. Kuwait was hit by Iranian missiles, as was Amman, Doha and Riyadh, which remained open on Sunday.

Saud Arabia’s Tadawul was down nearly 1.5%, while Qatar’s main benchmark traded down nearly 2%. Amman’s bourse was also down 2%, while Bahrain’s exchange hovered around 0.88% lower.

The United Arab Emirates has been subjected to a second day of explosions, heard by CNBC’s team on the ground in the country. Dubai and Abu Dhabi’s exchanges open for trade on Monday morning; they closed lower in Friday’s trade.

Israel’s Tel Aviv stock exchange opens Monday morning for trading, and the exchange shifted in January to Monday-Friday trading in line with global markets.

—Emma Graham

Iran’s top security official, Ali Larijani, said the United States and Israel are seeking to “plunder and disintegrate” the country, Reuters reported, citing state television, as Tehran moves to shore up control following the killing of Supreme Leader Ayatollah Ali Khamenei.

Larijani said a temporary leadership council would be established on Sunday and warned that any “secessionist groups” attempting to take action would face a harsh response.

—Lee Ying Shan

The United Arab Emirates has ordered schools and universities nationwide to switch to remote learning from Monday to Wednesday as Iran launches attacks on Arab states with U.S. assets.

In a post on X Sunday, the UAE’s Ministry of Education and the Ministry of Higher Education and Scientific Research said that students, educational and administrative staff in all public and private schools nationwide will switch to “distance learning” for the upcoming three days.

— Anniek Bao

U.S. President Donald Trump warned Sunday that Washington would respond with unprecedented force if Iran retaliates against recent U.S. strikes.

In a post on Truth Social, Trump wrote: “Iran just stated that they are going to hit very hard today, harder than they have ever been hit before,” adding, “THEY BETTER NOT DO THAT, HOWEVER, BECAUSE IF THEY DO, WE WILL HIT THEM WITH A FORCE THAT HAS NEVER BEEN SEEN BEFORE!”

—Lee Ying Shan

Several loud explosions were heard in the Qatari capital Doha for a second day on Sunday, according to media reports.

Reuters reported blasts were heard in the Dubai area as well as Doha. In a video posted by Doha News on Sunday, thick smoke was seen billowing near Barwa in Doha after Iran launched missiles towards Qatar that hosts U.S. military bases.

— Anniek Bao

The death of Iran’s Supreme Leader Ayatollah Ali Khamenei sets in motion a formal succession process that could have significant implications for the country’s political stability, sanctions outlook and already strained economy.

However, analysts warned that elimination of the supreme leader does not equal transformation.

“Taking out Iranian Supreme Leader Ayatollah Ali Khamenei is not the same as regime change. The Islamic Revolutionary Guard Corps is the regime,” the Council on Foreign Relations noted following his passing, limiting the prospects for immediate political or economic transformation. 

Marko Papic, chief strategist at Clocktower Group, echoed a similar views: “The Iranian economy is soon to be a parking lot unless the next Supreme Leader is more amenable to negotiating with the U.S.”

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— Lee Ying Shan

Airports in Dubai and Abu Dhabi were damaged overnight as Iranian retaliatory attacks spread across the Gulf states.

“An incident” at Dubai International Airport (DXB) left four staff injured, according to a social media post by the emirate’s media office.

Most airport terminals had been cleared of passengers, the authority said, adding that further updates will be provided as they become available.

Authorities in Abu Dhabi also reported an interception of a drone that targeted the Zayed International airport, killing an Asian national and leaving seven injured.

Iran has responded to the U.S.-Israel strikes by targeting Israel and multiple Gulf states, including UAE, Qatar, Bahrain, Saudi Arabia, Kuwait and Jordan that host U.S. assets.

An intercepted Iranian drone reportedly caused a minor fire on the Burj Al Arab’s outer facade.

One of the berths at Dubai’s Jebel Ali Port also caught fire because of debris resulting from an aerial interception, according to local media reports, citing Dubai authorities.

— Anniek Bao

Iran experienced a near-total internet shutdown starting around 2 a.m. ET Saturday, according to independent internet monitoring group NetBlocks.

The organization, which uses network measurement and web traffic analytics to detect government-imposed outages, reported that national connectivity fell to just 4% of normal levels.

Posting on X, NetBlocks said the disruption coincided with U.S. and Israeli military operations and resembled restrictions imposed during last year’s conflict with Israel.

—Lee Ying Shan

Commander-in-chief of the Islamic Revolutionary Guards Corps died in the U.S.-Israeli attack against Tehran on Saturday, the country’s official news agency reported. Ali Shamkhani, representative of the Supreme Leader in the Supreme Defense Council, was also killed.

“We are hearing that many of their IRGC, Military, and other Security and Police Forces no longer want to fight and are looking for Immunity from us,” Trump said in the aftermath of Iranian Supreme Leader Ayatollah Ali Khamenei’s death.

— Vinay Dwivedi