ASIAN MARKETS PLUNGE AS OIL SOARS 30 PERCENT ON MIDDLE EAST WAR FEARS

Asian stock markets dropped Monday as oil prices soared 30 per cent on fears about supplies from the Middle East, as the US-Israeli war against Iran continued into a second week with no sign of letting up.

Investors, already spooked by concerns over extended tech valuations and the huge spending on AI, ran for the hills as crude rocketed to its highest level since the Russian invasion of Ukraine in 2022.

Fears grew that the Middle East conflict could last for some time after US President Donald Trump said only the unconditional surrender of Iran would end the war. He added at the weekend that the spike in prices was a small price to pay to eliminate Irans nuclear threat, reiterating the White Houses insistence that the rise is temporary.

Both main contracts, which had surged more than a quarter last week, spiked as Iran carried out retaliatory strikes against crude-producing Gulf nations. West Texas Intermediate, the main US oil benchmark, jumped as much as 30 per cent to hit a high of $118.88 per barrel, while Brent spiked 28 percent to as much as $118.73.

Since the beginning of the war, WTI is up more than 75 per cent and Brent more than 60 per cent.

Attacks on oilfields were reported in southern Iraq and in the northern autonomous Kurdistan region, which forced a US-run oilfield to cease production, while the United Arab Emirates and Kuwait have started reducing output. That came with maritime traffic in the Strait of Hormuz through which a fifth of global crude and gas passes halted since the war began on February 28.

The prospect of high energy prices for a sustained period has fanned fears of a fresh spike in inflation that could hit the global economy while preventing central banks from cutting interest rates to support growth.

With the prospect of the global economy taking a blow from the crisis, equity markets extended last weeks losses. Seoul, which had been the best performer this year thanks to a tech rally, tumbled more than eight percent at one point, while Tokyo shed seven percent and Taipei fell more than five percent. Hong Kong, Shanghai, Sydney, Singapore, Manila, and Wellington were also sharply lower.

Futures for all three main indexes on Wall Street were down more than two percent, while the dollar jumped against its peers as traders sought out its safe-haven status.

The deeper shock is spreading across the production chain, said SPI Asset Managements Stephen Innes. Gulf producers are scaling back output because storage hubs are filling up and export flows are seizing. Qatar has halted liquefaction at key gas facilities, a move that will take weeks to reverse even if the conflict cools tomorrow. In other words, the market is not dealing with a headline shock. It deals with a physical disruption of oil molecules. Oil above $100 is not just a commodity rally. It becomes a tax on the global economy.

However, Trump sought to offer reassurance that the spike in crude would not last long. Short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay for U.S.A. and World, Safety and Peace, he wrote on social media Sunday evening Washington time.