Asian Shares Mostly Lower as Iran War Fuels Oil Price Surge and Energy Supply Concerns
Asian shares experienced widespread declines on Tuesday, with oil prices surging higher as investors focused intently on the escalating risks to the region's energy supply stemming from the ongoing war in Iran. This market turmoil reflects deep-seated anxieties over potential disruptions to crude oil flows, which could have far-reaching economic consequences.
Market Declines Across Key Asian Economies
In South Korea, shares plummeted by 4.8% as markets reopened following a holiday, closing at 5,946.06. Japan's benchmark Nikkei 225 index sank 2.1% to 56,853.48, highlighting particular vulnerabilities for resource-poor nations heavily reliant on energy imports. Australia's S&P/ASX 200 lost 1.2% to 9,089.50, while Hong Kong's Hang Seng shed 0.1% to 26,038.29 and the Shanghai Composite index declined 0.3% to 4,170.63.
Oil Price Volatility and Energy Sector Impact
Benchmark U.S. crude oil rose by 77 cents to $72.00 per barrel, and Brent crude, the international standard, added $1.10 to $78.84 per barrel. These increases followed a volatile pattern, with prices jumping on Monday before partially retreating, yet remaining elevated compared to pre-conflict levels due to persistent worries about clogged global crude flows. Japanese energy stocks were hit hard, with Eneos Corp. down nearly 6% and Idemitsu Kosan falling nearly 4%.
Defense and Aviation Sectors Face Pressure
Defense-related stocks in Japan, which had recently risen on expectations of increased military spending under Prime Minister Sanae Takaichi, sank back as traders locked in gains. Mitsubishi Heavy plunged 5%, and IHI lost 4%. Meanwhile, airline stocks across Asia cascaded lower, with ANA down 2.4%, Japan Airlines falling 5.2%, Korean Air declining 8.9%, and Qantas Airways losing 2.9%. This mirrored losses on Wall Street, where higher oil prices threatened already substantial fuel bills and Middle East fighting disrupted travel.
Analyst Perspectives on Market Resilience
Despite the declines, market reactions have been relatively muted. Analysts note that past military conflicts in the Middle East have not caused long-term drops for U.S. markets. According to strategists at Morgan Stanley led by Michael Wilson, for this war to significantly and sustainably knock down U.S. stocks, oil prices would likely need to jump above $100 per barrel. Stephen Innes, managing partner at SPI Asset Management, emphasized that energy shocks do not automatically derail equities unless they are severe and sustained, a playbook well understood by investors.
U.S. Market Recovery and Broader Financial Trends
On Monday, the S&P 500 initially fell as much as 1.2% but finished with a slight gain of less than 0.1% at 6,881.62, recovering from steep early losses. The Dow Jones Industrial Average dipped 0.1% to 48,904.78, and the Nasdaq composite rose 0.4% to 22,748.86. This rebound was supported by oil companies benefiting from rising crude prices, such as Exxon Mobil climbing 1.1% and Marathon Petroleum rising 5.9%, as well as defense-related firms like Northrop Grumman up 5.9% and RTX rallying 4.7%.
Safe-Haven Assets and Currency Movements
Gold climbed 1.2% as investors sought safer assets amid the geopolitical uncertainty, while U.S. officials attempted to reassure markets that the war would not be prolonged. In the bond market, the yield on the 10-year Treasury rose to 4.04% from 3.97% late Friday, partly due to a better-than-expected U.S. manufacturing growth report. Currency trading saw the U.S. dollar slip slightly to 157.32 Japanese yen from 157.47 yen, and the euro edged up to $1.1693 from $1.1690.
This analysis underscores the interconnected nature of global markets, where geopolitical events like the Iran war can swiftly trigger volatility in energy prices and equity indices, though historical patterns suggest resilience may prevail absent sustained severe disruptions.
