Oil Rises Amid Middle East Tensions: Asia Markets React

Oil rises amid heightened geopolitical uncertainty after U.S. strikes on Iran’s nuclear facilities at the weekend. Asian equities mostly dipped, even as Chinese markets posted modest gains, as investors await Tehran’s potential response and its ripple effects on global energy flows.

When trading began Monday, both Brent crude and West Texas Intermediate (WTI) benchmarks surged more than 4%, marking their strongest levels since January. By mid-afternoon in Asia, the momentum had moderated, with prices still up approximately 1.1%.

The initial jump reflects deep investor concern that retaliatory moves out of Tehran—such as disruption of shipments through the Strait of Hormuz—could inflict real turbulence on oil supply. The Strait handles nearly one-fifth of the world’s traded oil, and any interference would significantly tighten global markets.

In Asia, equity markets mostly trended lower in response to heightened regional tensions:

• Tokyo closed down 0.1%.
• Seoul slipped 0.2%.
• Sydney dropped 0.4%.
• Jakarta led declines with a 1.7% fall.

By contrast, Chinese mainland stocks defied the regional pullback:

• Shanghai ended 0.7% higher.
• Hong Kong posted a 0.6% gain.

The divergence appears driven by China’s positioning as Iran’s largest oil customer—a relationship that may incentivize Beijing to avoid broader escalation, preferring stable energy ties.

Iran ranks as the world’s ninth-largest oil producer, pumping roughly 3.3 million barrels per day. With nearly half earmarked for export, the country wields notable influence over regional energy dynamics. One of Tehran’s most potent threats is to choke off the Strait of Hormuz—an act that could wreak havoc on global fuel supply. Even the specter of such a move can trigger panic in commodity markets, contributing to the current spike in oil prices.

Current Oil Flow Shows Resilience… So Far

Despite the surge in prices, satellite imagery suggests that cargo continues to transit through the strategic channel. As noted by Ipek Ozkardeskaya, senior analyst at Swissquote Bank: “So far, satellite images reportedly suggest that oil continues to flow through the Strait, which may explain the muted market reaction to the news.” This ongoing flow is likely tempering the broader escalation in prices, signaling that, despite rhetoric and posturing, the worst-case scenario remains untriggered.

Many analysts remain cautiously optimistic that Iran will stop short of an all-out response. They point out the country’s reluctance to invite further retaliation that could threaten its own oil infrastructure—and disrupt trade ties with key partners like China.

However, caution remains. Ozkardeskaya notes, “if things get uglier,” U.S. crude prices could surpass $100 per barrel—a stark breakout from current levels around $75 per barrel.

A sudden oil shock—particularly one caused by Iranian disruption—could inflict real economic pain across Asia. MUFG economists warned that such an event would “create a real negative impact on most Asian economies,” due to the deep reliance of many countries in the region on imported energy.

Indeed, the U.S. dollar appreciated amid the unrest, reflecting a flight to perceived safety. Yet analysts caution that unless tensions prove enduring, the dollar rally may quickly fade. Sebastian Boyd, a strategist at Bloomberg, suggested this could be a “knee-jerk reaction” fueled by short-term U.S. involvement, warning that if perceptions shift, “the dollar’s downward path is likely to resume.”

Chris Weston of Pepperstone pointed out that Iran doesn’t necessarily need to completely close the Strait to inflict economic pain. Even subtle moves—such as planting doubt about its security—could drive up maritime insurance fees and logistical costs. These would ripple through global energy supply chains, raising fuel prices even without physical disruption.

Meanwhile, traders are balancing Middle Eastern developments against other macro forces. Following the U.S. actions, “while Trump’s primary focus will be on the Middle East, headlines on trade negotiations could soon start to roll in and market anxieties could feasibly build,” Weston noted. That suggests oil may become more sensitive not just to geopolitics, but to trade headlines and broader economic sentiment.

1. Tehran’s next move: Will Iran escalate by disrupting traffic through the Strait of Hormuz? Or will it recalibrate and hold fire, avoiding a wider crisis?
2. Oil price trajectory: Will WTI test $100 per barrel if tensions escalate? Or will producer hedges and alternative supplies cap the rise?
3. Currency shifts: Will the U.S. dollar’s recent climb hold or reverse depending on the outcome of Middle Eastern tensions and ongoing trade negotiations?

The succinct reality: Oil rises sharply after U.S. strikes on Iran’s nuclear targets, driven by fears over supply disruptions related to the Strait of Hormuz. Asian markets broadly reacted negatively—excluding China’s slight rebound—while satellite evidence of continued shipping traffic softened the blow.

The next few days hinge on Iran’s response strategy: whether it opts for symbolic aggression or a calculated hold, avoiding all-out economic warfare. Markets remain on high alert across energy, currency, and equity sectors.

Source- EWN