War on Iran: Spilling over far beyond its borders

Azerbaijan on Thursday was preparing unspecified retaliatory measures after it said four Iranian drones flew across its border and injured four people in the Nakhchivan exclave, raising concern about further spillover of the conflict in the Middle East.

Azerbaijani President Ilham Aliyev told a meeting of his Security Council: "We will not tolerate this unprovoked act of terror and aggression against Azerbaijan. Our Armed Forces have been instructed to prepare and implement appropriate retaliatory measures."

The Azerbaijani authorities said they were investigating the types of drones used in the attack.

They said one drone fell on the terminal building of Nakhchivan International Airport, which is approximately 10 kilometers across the border from Iran, and another drone landed close to a school building in a nearby village. One was downed by the Azerbaijani army and another hit civilian infrastructure.

Also on Thursday, Turkish President Recep Tayyip Erdogan said that tensions in the Middle East have reached an alarming level following air strikes on Iran, pledging to intensify diplomatic efforts to prevent further escalation.

He said Türkiye would remain vigilant in safeguarding its borders and airspace and will continue multi-faceted diplomatic efforts to prevent further bloodshed in the region and stop tensions from escalating to an irreversible point.

While adjacent countries are worrying about the spillover of the war, the rest of the world is also concerned about the turbulent energy market.

Asia stocks fell on Friday and were headed for their sharpest weekly drop in six years while oil prices were poised for their biggest jump in three.

Investors sought the safety of cash as ‌they sobered up to the fact that the US-Israel conflict in Iran could drag on longer than initially anticipated.

They also moved to price in more hawkish rate expectations from major central banks, spooked by the prospect of a resurgence in inflation if the spike in energy prices persists.

The US national average for a gallon of regular gasoline jumped nearly 27 cents since last week to $3.25 per gallon on Thursday, said a release by the American Automobile Association.

"The last time the national average made a similar weekly jump was back in March of 2022 during the start of the Russia-Ukraine conflict," said the statement.

German 10-year Bund yields rose 9.5 basis points (bps) to 2.84%, their highest since February ‌9. They were 19 bps higher for the week, set for the largest weekly rise since March 2025.

Two-year yields, which are particularly sensitive to shifts in inflation expectations, were up 11 bps for the day and 23 bps for the ⁠week at 2.24%.

"High ‌energy prices have seen short-dated yields spike again today – but this is a global and not just a euro zone phenomenon," Chris Turner, head of global markets at ING, said.

(With input from agencies.)

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