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|Oil spikes after Iran attacks US forces (photo AFP)|
The main US contract rocketed by more than 4.5 per cent as fears over supplies in the tinderbox Middle East sent prices soaring.
The Pentagon said it was still "working on initial battle damage assessments" after bases at Ain al-Asad and Arbil in Iraq - which house US and coalition forces - were targeted by more than a dozen ballistic missiles.
There were no immediate reports on casualties. US President Donald Trump said the assessment was underway, but added on Twitter: "So far, so good".
Iranian Foreign Minister Mohammad Javad Zarif said on Twitter that Tehran had "concluded proportionate measures in self-defence".
"We do not seek escalation or war, but will defend ourselves against any aggression."
West Texas Intermediate and Brent Crude later pared their gains. At around 0300 GMT WTI sat at US$63.63 up 0.93 per cent, and Brent was at US$69.34, 1.10 per cent up.
Oil markets have been unsettled since Friday's killing in a US drone strike of Iranian general Qasem Soleimani, one of the most important figures in the country's government.
The assassination sparked an outpouring of rage and grief in Iran, along with a growing drumbeat of threats of revenge, and warnings of a possible war that could engulf much of the Middle East.
Safe haven assets also rose Wednesday as investors dumped stocks and headed to the hills.
Gold was up more than 2 per cent, surging above US$1,600 an ounce for the first time in six years, before falling back slightly.
The Japanese yen, where investors traditionally take refuge in times of uncertainty, was also up, adding fuel to the fire in Tokyo, where the Nikkei 225 index plunged more than 2.5 per cent in early trade.
"It's not going to be pretty today," said AxiTrader's Stephen Innes.
However, a possible market rout faded as Asian bourses got going in earnest, with early declines slowing.
By around 0300 GMT, the Nikkei was off 2.3 per cent, Sydney was down 0.43 per cent and Shanghai's main index had shed 0.34 per cent.
In Tuesday trade, US stocks had finished slightly lower while European markets were broadly flat - Frankfurt outperforming its peers with a 0.8-per cent gain.
TRUMP "DOING THIS FOR US PRESIDENTIAL ELECTION"
Both the US and Iran appear to have made miscalculations, according to analyst Masayuki Kichikawa.
"Trump is doing this for the US presidential election but seems to have made some miscalculations," said the chief macro strategist at Sumitomo Mitsui Asset Management. "Iran also miscalculated its response when paramilitary forces linked to Iran surrounded the US embassy.
"Iran is already in bad shape because of US economic sanctions and does not have the military capability to defeat the United States in a direct war."
Developments including confirmation of US casualties could lead to further movements, said Gain Capital market analyst Matt Simpson.
"You can pretty much get the sentiment from gold. It is holding above US$1,600. If there is confirmation that there are US casualties, it could go higher," he said. "If it does look like we've got US casualties, then I don't think Trump is going to just stand back and take that.
"World War III has been thrown around. I don't think we're there yet. But it does look like Iraq II."
Other analysts warned equities would take a hit, especially in Asia.
"Expect equities to take a hit, especially in imported energy-dependent Asia," said OANDA Senior Market Analyst for Asia Pacific Jeffrey Halley. "Airline stocks will be out of favour today because of oil, but that won't be the whole story.
"The potential closure of the Straits of Hormuz - Iran has plenty of land-based anti-ship missiles - will severely disrupt oil supplies from the Middle East."
He added: "We may also see next week's signing of the interim US-China trade agreement in Washington DC delayed."