Global Markets Reel as U.S.–Israel Strikes on Iran Send Oil Surging and Investors Flee to Safety

BY Rosemary

Financial markets across the globe were jolted Monday after coordinated U.S. and Israeli strikes on Iran intensified conflict in the Middle East, triggering sharp swings in equities, currencies and commodities. Oil prices spiked dramatically on fears of supply disruptions, U.S. stock futures tumbled more than 1%, and investors rushed into traditional safe-haven assets such as gold and government bonds.

Futures tied to the S&P 500 dropped 1.4% in early trading, while contracts for the Dow Jones Industrial Average fell 1.2%, pointing to a weaker open on Wall Street. The moves followed a volatile close last week and underscored mounting anxiety over how a prolonged regional war could ripple through the global economy.

The reaction across Asia was mixed but largely negative. Japan’s Nikkei 225 initially slid more than 2% before recovering some ground to finish down 1.4% at 58,057.24. Defense-related shares provided a cushion, with Mitsubishi Heavy Industries and IHI Corp. posting gains amid expectations of increased military spending and equipment demand.

In mainland China, the Shanghai Composite edged up 0.5% to 4,185.29, buoyed by energy producers that rallied in response to soaring crude prices. Shares of CNOOC, China Petroleum & Chemical, and PetroChina surged to their daily 10% trading limits as investors bet higher crude prices would boost earnings. By contrast, Hong Kong’s Hang Seng fell 2% to 26,102.53, reflecting broader regional unease.

Elsewhere in Asia, India’s BSE Sensex dropped 1.8%, reflecting concerns that hostilities could disrupt the country’s access to imported oil. Taiwan’s benchmark index lost 0.9%, Singapore declined 1.9%, and Thailand’s SET index slid 1.9%. Australia’s S&P/ASX 200 closed virtually unchanged at 9,200.90, supported by gains in resource stocks. Markets in South Korea were closed for a public holiday.

Energy markets were at the center of the turbulence. Traders sharply repriced crude futures on fears that supply from Iran and other Gulf producers could be curtailed. U.S. benchmark West Texas Intermediate crude initially surged about 8% before paring gains slightly to trade up 7.5% at $72.06 per barrel in afternoon trading in Tokyo. Brent crude, the international benchmark, climbed 8% to $78.69 per barrel.

The Strait of Hormuz — the narrow maritime passage linking the Persian Gulf to global shipping lanes — has become a focal point of concern. Roughly one-fifth of the world’s oil and liquefied natural gas shipments transit the corridor. Reports of attacks on vessels navigating the strait have heightened fears that exports could slow or halt altogether, amplifying price pressures worldwide.

A prolonged interruption to Middle Eastern oil flows would likely drive up costs for gasoline, diesel and jet fuel, with cascading effects across manufacturing, transportation and consumer goods. Energy remains a fundamental input for nearly all industrial production, meaning sustained price increases could reignite inflationary pressures just as central banks attempt to stabilize growth.

Iran exports approximately 1.6 million barrels of oil per day, much of it destined for China. Any disruption to those shipments could force Beijing to draw down strategic reserves or seek alternative suppliers, potentially tightening global supply further. Estimates by independent analysts suggest China’s strategic petroleum reserves could cover roughly 100 days of imports, though official figures remain undisclosed.

The surge in geopolitical risk also lifted safe-haven assets. Gold prices climbed 2.7% to around $5,392 per ounce as investors sought protection from volatility. In currency markets, the U.S. dollar strengthened, rising to 156.99 Japanese yen from 156.27 late Friday. The euro slipped to $1.1732 from $1.1762, reflecting renewed demand for dollar-denominated assets during periods of uncertainty.

Bond markets signaled caution as well. U.S. Treasury yields fell, indicating strong demand for government debt as investors shifted away from equities. The flight to safety comes at a delicate moment for financial markets already grappling with inflation data and uncertainty over monetary policy.

On Friday, the S&P 500 had fallen 0.4%, marking only its second losing month in the past ten, while the Dow Jones Industrial Average declined 1.1% and the Nasdaq composite dropped 0.9%. A government report showing U.S. wholesale inflation at 2.9% last month — significantly above economists’ expectations of 1.6% — added to investor anxiety. Persistent inflation could compel the Federal Reserve to delay planned interest-rate cuts, limiting support for both economic growth and asset prices.

Despite the immediate shock, some analysts noted that markets had partially priced in the possibility of military escalation following a visible buildup of U.S. forces in the region. That anticipation may have prevented even steeper declines in equities. Nonetheless, the scale and intensity of the strikes have introduced fresh uncertainty into an already fragile global environment.

In recent months, market narratives had been dominated by developments in artificial intelligence and technology sector valuations. The escalation in the Middle East has abruptly shifted focus back to traditional geopolitical and energy risks. With oil volatility now front and center, investors are reassessing exposure across sectors and regions, weighing the potential for sustained disruption against hopes that diplomatic channels might yet prevent a deeper and more protracted conflict.

For now, financial markets remain on edge, closely tracking developments in the Gulf and bracing for further swings as geopolitical tensions and economic fundamentals collide.