By Parisa Hafezi and Maayan Lubell
DUBAI/JERUSALEM, March 9 (Reuters) - Iran's hardliners staged a show of force on Monday, taking to the streets to proclaim their loyalty to new supreme leader Mojtaba Khamenei, whose rise appeared to dash hopes of a swift end to war in the Middle East causing havoc on global markets.
The prospect that one of the most severe disruptions ever to hit global energy supplies could last longer than previously expected sent oil prices surging in record leaps and stock markets into a nosedive.
Khamenei, 56, a Shi'ite cleric with a power base among the security forces and their vast business empire, has been declared unacceptable by U.S. President Donald Trump, who has demanded Iran's unconditional surrender.
Iranian state media showed large crowds in several cities rallying behind the new leader, waving Iranian flags and holding portraits of his father Ali Khamenei, killed by strikes on the war’s first day.
In Isfahan, state TV reported the sound of nearby explosions from apparent airstrikes as loyalists gathered in the historic Imam Square, chanting "God is the Greatest" below a stage with portraits of Ali and Mojtaba Khamenei. In Tehran, a eulogist could be heard singing: "Either death or Khamenei, our blood leads to paradise."
POLITICAL SYSTEM RALLIES BEHIND NEW LEADER
Politicians and institutions issued pledges of loyalty to the new supreme leader.
"We will obey the commander-in-chief until the last drop of our blood," a defence council statement said.
Iranians reached by telephone were divided, with supporters of the authorities hailing the choice as a declaration of defiance and opponents fearful it would dash their hopes for change.
"I am so happy that he is our new leader. It was a slap in the face to our enemies that thought the system will collapse with the killing of his father. Our late leader's path will continue," said university student Zahra Mirbagheri, 21, from Tehran.
Many Iranians had initially celebrated the elder Khamenei's death, weeks after his security forces killed thousands of anti-government protesters in the worst domestic unrest since the era of Iran's 1979 revolution. But there has since been little sign of anti-government activity, with activists fearful of taking to the streets while Iran is under attack.
"The (elite Revolutionary) Guards and the system are still powerful. They have tens of thousands of forces ready to fight to keep this regime in place. We, the people, have nothing," said Babak, 34, a businessman in the central city of Arak who asked to keep his family name confidential.
Israel says its war aim is to overthrow Iran's system of clerical rule. U.S. officials mainly say Washington's aim is to destroy Iran's missile capabilities and nuclear programme, but Trump has said the war could end only with a compliant Iranian government.
Israel had said it would kill whoever succeeded the elder Khamenei unless Iran ended its hostile policies. Fox News quoted Trump, who says he must have a say in the choice of new supreme leader, as saying that he was "not happy" with the choice.
OIL SURGES PAST $100 A BARREL
The war has effectively shut the Strait of Hormuz, where a fifth of global oil and liquefied natural gas is shipped along Iran's coast. With tankers unable to sail for over a week, producers have run out of storage and are being forced to stop pumping.
Sources said on Monday that Saudi Arabia had curbed production at two oil fields, making the world's top oil exporter the latest Gulf country forced to reduce output, following Iraq and Kuwait in recent days.
Brent crude futures were up nearly 8.4% at $100.54 per barrel around 1344 GMT, having earlier shot as high as $119.50 in what would have been the biggest one-day rise on record.
The prospect of a prolonged energy crisis - reviving memories of the Middle East oil shock of the 1970s - sent share markets in Asia and Europe into a tailspin, which carried over to Wall Street after it opened on Monday. Bond yields surged as investors bet that central banks would have to cancel rate cuts or impose hikes to fight inflation.
The price of gasoline has particular political resonance in the United States, where Trump's Republicans hope to keep control of Congress in midterm elections in November. He won re-election in 2024 after pledges to end foreign wars and cut the cost of living.
"Short-term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay for U.S.A., and World, Safety and Peace," Trump posted on Truth Social on Sunday night. "ONLY FOOLS WOULD THINK DIFFERENTLY!"
Tehran was choked in black smoke after an oil refinery was hit, an escalation in strikes on Iran's domestic energy supplies which appeared to trigger attacks on Washington's Gulf Arab allies. Thick smoke rose from a refinery in Bahrain, where state oil company Bapco declared force majeure.
Turkey said on Monday NATO air defences had shot down a ballistic missile that was fired from Iran and entered Turkish airspace, the second such incident of the war. Iran did not immediately comment on the report.
Israel's military said it had launched new attacks in central Iran and struck the Lebanese capital Beirut, where Israel has extended its campaign after the Iran-backed militia Hezbollah fired across the border.
U.S.-Israeli attacks have killed at least 1,332 Iranian civilians and wounded thousands, according to Iran's U.N. ambassador. Lebanon has reported scores of people killed there.
In Israel, ambulance workers said one man died from shrapnel wounds at a construction site near Tel Aviv's international airport, raising to 11 the death toll from Iranian strikes.
(Reporting by Reuters bureaux, Writing by Peter GraffEditing by Timothy Heritage, Aidan Lewis)
