Iran named Mojtaba Khamenei to succeed his slain father as supreme leader on Monday, signalling that hardliners remain firmly in charge and appearing to close off any path to a swift end to war in the Middle East.
The prospect that the disruption to global energy supplies - already one of the most severe in history - could last longer than previously expected sent oil prices surging in record leaps and global 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 US President Donald Trump, who has demanded Iran's unconditional surrender.
Despite Trump's warnings, Tehran remains defiant. Ankara 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.
Iranian state propaganda media showed large crowds in the streets of several cities showing support for the new leader, carrying Iranian flags and 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."
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 calmly laid out.
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 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. Washington initially said its aim was to destroy Iran's missile capabilities and nuclear programme, but Trump later 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. Trump on Sunday again demanded Washington have a say in the selection of the supreme leader.
(Reporting by Reuters bureaux, Writing by Michael Perry and Peter Graff, Editing by Lincoln Feast, Timothy Heritage, Aidan Lewis)