Global financial markets plunged on Monday as escalating geopolitical tensions between the United States and Iran sent shockwaves through Asia and Europe. The crisis was ignited by a 48-hour ultimatum issued by former U.S. President Donald Trump, warning that the U.S. would "obliterate" Iran's power facilities unless Tehran fully reopened the Strait of Hormuz, a critical chokepoint for global oil shipments. Iran responded with a counter-threat to attack U.S. energy infrastructure in the Gulf and prolong the strait's closure.
The immediate fallout was most severe in Asian markets. Japan's Nikkei 225 index crashed approximately 2,000 points, a drop of roughly 5%, at the open. South Korea's Kospi slumped about 6%, briefly triggering a circuit breaker after Kospi 200 futures fell more than 5%. The sell-off was driven by these nations' heavy reliance on Middle Eastern oil, with Japan importing about 95% of its oil from the region, 70% of which transits the Strait of Hormuz. Hong Kong's Hang Seng index fell 2.6%, Australia's ASX 200 dropped 2.4%, and Chinese and Indian indices also posted significant losses.
The crisis has evolved from an oil shock into a broader fuel shock. This follows Iran's attack last week on Qatar's main LNG facility, which supplies a significant portion of Europe's gas. With repairs expected to take three to five years, the disruption threatens power prices, fertilizers, shipping, and industrial production globally. At the time of reporting, Brent crude was hovering around $107 per barrel, with WTI crude at $98.91.
European markets followed Asia lower, with the pan-European STOXX 600 index falling 2.31%, putting it on track for a technical correction. The UK's FTSE 100 fell 2.35% to its lowest level since mid-December, as the 10-year gilt yield climbed above 5% for the first time since the global financial crisis. Sector losses were led by airlines and miners, with jet fuel costs surging and commodity prices falling. Investors are now pricing in at least two interest rate hikes from the European Central Bank this year, a sharp shift in expectations.
Market analysts highlighted the severe economic implications. Russ Mould of AJ Bell noted the shift to a "more serious scenario" with "longer-lasting consequences" for energy supplies and economic growth. Richard Hunter of Interactive Investor stated investors are "running out of hiding places" as equities surrender gains and yields spike.
