Last week there were hopes that record petrol prices could fall back to as low as $1.80 a litre as the global oil price dropped.

The price in Brisbane this morning varied but was still as high as $2.33 a litre.

The Hamas strike against Israel has created tension in the market because of claims that Iran, a major oil producer, could have been an instigator of the attack.

“The move also puts to bed any concern that Saudi Arabia would lift voluntary production cuts due to high prices,” ANZ economists said this morning.

Oil prices jumped more than 4 per cent with Brent crude rising to $US88.11 a  barrel and the US WTI $US86.34 a barrel. European gas prices jumped 9 per cent, but this was mostly related to a supply risk from a leak discovered in an undersea pipeline in the Baltic.

Investors have also jumped into gold as a safe haven and futures were 2 per cent higher at $US1876.25 an ounce.

“While Israel’s role in global oil supply is limited, the greatest risk is conflict contagion further into the region, ANZ said.

“Amid reports suggesting Iran may have helped plan the attacks, any broadening of the conflict could see a significant level of supply come under threat. Iran’s potential involvement could also raise the risk of additional sanctions being placed on its oil industry.

“Despite the risks, the impact of the conflict is likely to remain limited in the short term. However, it raises the prospect of a geopolitical risk premium being applied to oil prices.”

RBC Capital Markets chief European macro strategist Peter Schaffrik said the uncertainty about what it means for the region means that oil is going up.

“And there is a bit of ‘risk off’ and hence bond markets are performing and equity markets are down a little bit,” he said Peter Schaffrik.

He said for a broader or lasting impact, the conflict would likely need to escalate beyond Israel’s borders.

“You can’t help but feel sympathy for the people on the ground, but the market, if it doesn’t impact the wider economy, can easily shrug things off.”

A combination of capitulation by asset managers who had been long government bonds, rising oil prices, a deluge of government and corporate bond supply, and investors finally accepting that central banks will keep rates high for a long time has driven the bond sell off. Friday’s blowout US jobs report only added to the higher for longer rates view.