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Asian equity markets fell sharply on Monday, while oil prices briefly reached five-month peaks due to fears of upheaval in energy markets following the US's involvement alongside Israel in attacks on Iran's nuclear installations, which heightened tensions in the Middle East. Iran stands as the ninth-largest oil producer globally, generating approximately 3.3 million barrels each day. Nearly half of this production is exported, with the remainder allocated for local needs. Should Tehran choose to respond, analysts suggest one possible course of action could be to attempt to block the vital Strait of Hormuz, a route responsible for transporting one-fifth of the world’s oil supply. Oil prices increased by over 2 percent, their highest levels since January, with Brent crude rising 2.7 percent to reach $79.12 per barrel and US crude climbing 2.8 percent to $75.98. In Asia, stocks decreased as traders processed the events from the weekend, with investors anxiously anticipating Iran's response to the US’s assaults on its nuclear sites. Iran has issued threats toward American military bases in the Middle East as tensions mount regarding a possible escalation of conflict in this unstable region.
In the US, stock markets displayed some degree of resilience, with S&P 500 futures dropping by a manageable 0.5 percent and Nasdaq futures decreasing by 0.6 percent. Asian indices reflected a downturn, with Tokyo's Nikkei index losing 0.6 percent, Seoul dropping by 1.4 percent, and Sydney's market declining by 0.7 percent. The MSCI index that tracks Asia-Pacific shares, excluding Japan, dipped by 0.5 percent as well. In Europe, futures for EUROSTOXX 50 declined by 0.7 percent, while FTSE futures decreased by 0.5 percent and DAX futures slipped by 0.7 percent. Both Europe and Japan rely significantly on imported oil and liquefied natural gas, in contrast to the United States, which is a net exporter. In the commodity sector, gold saw a slight dip of 0.1 percent, settling at $3,363 per ounce. Meanwhile, the US dollar increased by 0.3 percent against the Japanese yen, reaching 146.48 yen, whereas the euro fell 0.3 percent to $1.1481. The dollar index rose by 0.17 percent, hitting 99.078. There were no signs of a significant shift towards the safety of Treasury bonds, as yields on ten-year notes rose by 2 basis points to 4.397 percent.
Market participants are bracing for further price increases amid escalating concerns that Iran may take retaliatory action against the US by closing the Strait of Hormuz, which at its narrowest point is approximately 33 kilometers (21 miles) wide and sees about one-quarter of global oil trade along with 20 percent of liquefied natural gas supplies. While Tehran has previously issued threats to close the strait, it has never executed such a plan. However, after the recent US activities, Iran's Press TV announced that the Iranian parliament has approved a proposal to shut the strait. Optimists remain hopeful that Tehran might reconsider, especially with its nuclear aspirations now facing limitations, or that a change in regime could lead to a less confrontational government.
Analysts from JPMorgan have warned that historical instances of regime changes in the area have generally led to significant increases in oil prices, with spikes reaching as high as 76 percent and an average rise of around 30 percent over time. Vivek Dhar, a commodities expert from the Commonwealth Bank of Australia, remarked to Reuters, "It may be more logical for Iran to implement targeted disruptions that deter oil tankers rather than fully closing the Strait of Hormuz, as that would also halt Iran’s own oil exports." He further stated, "If Iran were to selectively disrupt maritime transport through the Strait of Hormuz, we could see Brent crude oil prices soaring to at least $100 per barrel."
