Asian stocks plunged while oil prices surged about 20% in early trade on Monday as the dramatic escalation in the conflict involving the U.S., Israel, and Iran rattled global markets. While the regional markets opened in the red, Bitcoin (BTC) held steady near $67,000.
Oil futures surged above $110 a barrel as some major Middle Eastern oil producers announced they were reducing supplies due to concerns of prolonged disruption to shipping through the Strait of Hormuz. Crude has now hit its highest level since July 2022.
Oil Jumps as Iraq, Kuwait, UAE Hint at Production Cuts
West Texas Intermediate (WTI) and Brent Crude Futures skyrocketed by roughly 17% and 25%, respectively – marking one of the largest single-day percentage gains in history. This rally centers on the risk that continued fighting could restrict oil flows near the strait – a maritime chokepoint responsible for the transit of roughly 20% of global crude supply daily.
Reports suggest that Iraq, Kuwait, and the UAE are actively reducing oil supplies as their storage facilities reach capacity, and Iran continues to threaten critical infrastructure in countries housing U.S. army bases. Iraq has cut production by nearly 1.5 million barrels per day, with potential for further reductions of up to 3 million barrels as storage fills. Kuwait announced cuts of about 100,000 barrels per day, which is expected to triple soon, while the UAE is managing its output to address storage limits amid halted exports.
Meanwhile, Saudi Arabia, with limited storage days left, is expected to follow suit as onshore and offshore capacities near exhaustion, though the kingdom recently boosted its output. Qatar has already halted liquefied natural gas (LNG) exports, but warned of broader Gulf export stoppages within weeks if the Strait of Hormuz remains hostile. However, Oman, which paused exports before the OPEC+ announcement to increase production, did not hint at fresh cuts amid the conflict.
Asian Markets Open Lower as Dollar Outpaces Yen, Won
The fallout was immediate across Asian trading floors. In Australia, the S&P/ASX200 index plummeted 3.6%, led by heavy losses in banking and mining giants. Markets in Tokyo and Seoul saw similar declines as investors grappled with the reality of higher input costs for energy-dependent industries. The sharp climb in oil futures has boosted the U.S. Dollar Index (DXY), resulting in USD outperforming the yen (JPY) and the won (KRW), as investors sought the ultimate safe-haven asset.
“Asia takes the brunt of the sharp escalation in oil prices, and there are few places to run and hide. The dollar has to be the one outperforming, given Japan and Korea’s exposures and the sharp pain that can be expected from Brent at $107,” said Vishnu Varathan, Head of Macro Research Asia at Mizuho.
He warned that a “sudden supply shock” could reverberate beyond the net energy exporter and importer, as there are acute supply chain effects beyond the price that eat into margins – naming Indonesia as a typical example where street protests happen when the price at the gas station goes up.
Analysts at BMI noted that while oil-producing nations in sub-Saharan Africa and Latin America – such as Nigeria and Peru – might find a silver lining in higher oil prices, energy net importers like India and Pakistan face an existential economic threat.
Rick Wilkinson, CEO of Australian energy consultancy firm EnergyQuest, signalled that Russia could emerge as the unexpected victor in the crisis, as it holds unutilized LNG and oil capacity that can now be sold at a massive premium.
Crypto Markets Stay Resilient as Iran Conflict Seen as Energy Shock
However, in a striking divergence from the ongoing geopolitical shocks, the cryptocurrency market managed to hold steady as equities collapsed. BTC is trading around $67,000 with little sign of panic selling, while Ether (ETH) and Solana (SOL) posted modest gains, suggesting that the sector has so far treated the conditions as an energy-specific shock rather than a broad risk-off event.
Nevertheless, the political rhetoric remains aggressive, with the U.S. President, Donald Trump, describing the spike in oil prices as a “small price to pay” for America to ensure global safety and peace. His administration continues to signal that it is prepared for a prolonged standoff against Iran. This aggressive stance comes at a sensitive time in Tehran, where Ali Khamenei’s son, Mojtaba Khamenei, has been named as the country’s new Supreme Leader.
As the war enters its second week, the window for a diplomatic negotiation appears to be closing. Kpler analysts warn that if the disruption in the Strait of Hormuz prolongs, then oil prices could realistically target $150 per barrel – potentially plunging the global economy into a deep recession.
