Asian Markets Retreat as Oil Prices Surge on Escalating Iran Conflict

BY EMMANUEL OGBONNA

Asian equity markets mostly declined Tuesday while oil prices climbed sharply, as investors weighed the risk that the widening war involving Iran could disrupt critical energy supplies flowing through the Middle East.

Trading sentiment across the region remained cautious after crude benchmarks posted significant gains, reflecting fears that hostilities could interfere with shipments through the Strait of Hormuz, a vital maritime chokepoint for global oil and liquefied natural gas.

In South Korea, shares tumbled as markets reopened following a public holiday on Monday. The benchmark index dropped 7.2% to 5,791.91, marking one of its steepest single-day declines this year. The selloff reflected renewed concerns over energy costs and geopolitical uncertainty rippling through export-driven economies.

Oil markets extended gains from the previous session. U.S. benchmark crude rose $2.03 to $73.26 per barrel, while Brent crude, the international standard, advanced $2.58 to $80.30 per barrel. Both contracts had surged on Monday before retreating slightly, though they remained elevated compared with levels seen before the outbreak of intensified hostilities. Traders cited mounting concerns that sustained conflict could constrict the global flow of crude and fuel inflationary pressures worldwide.

Japan’s Nikkei 225 index fell 3.1% to close at 56,279.05. As a resource-poor nation heavily dependent on imported energy, Japan is considered particularly vulnerable to disruptions in the Strait of Hormuz, through which a substantial share of its oil and natural gas supplies transit.

Market analysts noted, however, that Japan maintains strategic petroleum reserves estimated to cover more than 200 days of consumption, suggesting that any immediate supply shock may be cushioned in the short term. Still, energy-sensitive sectors bore the brunt of investor anxiety.

Shares in major Japanese energy firms declined, with Eneos Holdings sliding 3.4% and Idemitsu Kosan dropping 3.1%. Defense-related stocks, which had rallied recently amid expectations of increased military spending under Prime Minister Sanae Takaichi, reversed course as traders locked in gains. Mitsubishi Heavy Industries fell 5.3%, while IHI Corp. lost 4.9%.

Elsewhere in the Asia-Pacific region, Australia’s S&P/ASX 200 retreated 1.3% to 9,077.30. Hong Kong’s Hang Seng index shed 1.2% to 25,737.86, and the Shanghai Composite index in mainland China declined 1.4% to 4,122.68, reflecting broader unease across regional markets.

Airline stocks were among the hardest hit, mirroring losses seen on Wall Street the previous day. Rising crude prices threaten to inflate fuel costs, one of the industry’s largest operating expenses, while ongoing fighting in parts of the Middle East has disrupted flight routes and temporarily closed some airports.

In Asia, All Nippon Airways fell 3.3%, while Japan Airlines slumped 6.4%. Korean Air dropped 10.3%, and Australia’s Qantas Airways declined 1.8%. The sharp losses underscored investor concerns that a prolonged period of elevated oil prices could squeeze profit margins and dampen travel demand.

Despite the volatility, strategists emphasized that market reactions to geopolitical conflicts have historically been measured unless energy shocks prove both severe and sustained. Past military confrontations in the Middle East have often triggered short-lived turbulence rather than prolonged downturns in global equities.

On Wall Street, major indexes had staged a late recovery Monday after steep early losses. The S&P 500 briefly fell as much as 1.2% before closing marginally higher at 6,881.62. The Dow Jones Industrial Average slipped 0.1% to 48,904.78, while the Nasdaq Composite rose 0.4% to 22,748.86, buoyed by gains in large technology stocks.

Energy companies benefited from higher crude prices. Exxon Mobil advanced 1.1%, and Marathon Petroleum climbed 5.9%. Defense contractors also saw gains, reflecting expectations of increased military spending. Northrop Grumman rose 5.9%, RTX added 4.7%, and Palantir Technologies gained 5.8%. Nvidia, a heavyweight in the technology sector, climbed 2.9% and was among the strongest contributors to the S&P 500’s rebound.

Safe-haven demand lifted gold prices by 1.2%, as investors sought protection against heightened geopolitical risk. In bond markets, the yield on the 10-year U.S. Treasury note rose to 4.04% from 3.97% late last week, supported in part by data indicating stronger-than-expected growth in U.S. manufacturing activity.

Currency markets showed modest movement. The U.S. dollar edged down to 157.37 Japanese yen from 157.47 yen, while the euro slipped to $1.1652 from $1.1690.

For now, financial markets appear to be calibrating their response to the evolving conflict. Investors are closely monitoring oil price trajectories and any developments affecting the Strait of Hormuz, aware that sustained disruptions to energy flows could significantly alter the global economic outlook.