US stock futures fell with investors on edge as Israel and Iran continued to trade strikes against a backdrop of shifting US trade policy and stubborn interest rates.

Stock futures lost ground Tuesday morning, while oil prices surged, as investors monitored developments in the escalating conflict between Israel and Iran.

The missile exchanges dominate global market focus as it intensified fears of energy supply disruptions. West Texas Intermediate (WTI) crude futures climbed as high as $74.78 per barrel Sunday evening, but eased back to below $72.54 per barrel this morning, though that remains 11% above where it traded last Monday.

Investors are regaining some appetite for risk amid rising optimism that the conflict won't spill over into a broader regional crisis.

The U.S. stock market rose amid news that Iran wants a ceasefire with Israel. Tel Aviv, however indicated it was not interested in one.

The Middle East conflict is impacting a wide range of sectors besides the obvious oil and defense names, as a surge in oil prices can affect consumer behavior in many ways.

The Nifty 50 is trading at 20.9x one-year forward P/E — slightly below the long-term average — but small- and mid-cap stocks appear overheated. Emkay Global notes that 38% of BSE200 stocks now trade above their 5-year average valuation,

At 8:12 am, the Gift Nifty futures were trading at 24,957. This points to a likely flat start for the Nifty50, which closed at 24,946.5 on Monday.