Oil prices tumble as Iran fears ease, yen weakens after Japan polls

HONG KONG, China — Oil prices tumbled Monday with markets relieved that Israel's strikes on Iran had avoided the country's energy infrastructure while the yen fell to a three-month low after Japan's ruling party suffered an election drubbing.

Israel carried out air strikes on military sites in Iran on Saturday in response to Tehran's October 1 missile barrage, itself retaliation for the killing of Iran-backed militant leaders and a Revolutionary Guards commander.

Iran has downplayed the attack, saying it caused "limited damage" to a few radar systems, signaling what analysts say is the Islamic republic's reluctance to escalate further.

Oil prices fell as much as five percent in early trade before paring some of their losses.

"Israel's strike, carefully avoiding energy sites, has softened fears of a full-scale conflict with Iran," said Stephen Innes, analyst at SPI Asset Management.

"Even more telling is Iran's response, downplaying the attack's impact and signaling that its warnings may have deterred any more aggressive action from Israel," he said.

"If tensions cool further or peace talks unexpectedly gain traction, we could see oil slide down to $60 per barrel as traders shift focus back to the looming 2025 supply glut — especially if China's economic stimulus underwhelms," Innes added.

Concerns about the outlook for the world's largest oil importer have added to the downward pressure on crude prices, with observers waiting for headline figures on Beijing's stimulus plan to support the wavering Chinese economy.

Investors are looking for details of any major stimulus package to be unveiled after the conclusion of a key political meeting in Beijing next week, which coincides with the US presidential election.

On currency markets the yen hit a three-month low, sliding more than one percent against the dollar as Japan's ruling coalition looked set to lose its majority after Sunday's general election.

In morning trade, one dollar bought 153.88 yen, the Japanese currency's lowest value since late July.

New Prime Minister Shigeru Ishiba's gamble calling snap elections appeared to have backfired badly, with his Liberal Democratic Party projected to have fallen short