Global financial markets tumbled on Monday, as the escalating U.S.-Iran conflict intensifies, fueling fears of prolonged energy supply disruptions, surging living costs, and delayed interest-rate cuts by central banks worldwide.
Crude oil prices soared nearly 30% at one point — one of the largest one-day jumps on record — before settling at elevated levels, reflecting acute concerns over infrastructure damage and shipping halts in the region. Brent crude futures closed up roughly 13% at $104.50 per barrel, while U.S. West Texas Intermediate (WTI) futures rose 12% to $101.80.
The spike was driven by Iran’s declaration that the Strait of Hormuz — through which about 20% of global oil and liquefied natural gas (LNG) transits — is closed, with threats to attack any vessels attempting passage. This has effectively halted tanker traffic, with around 200 ships anchored to avoid risks and insurers cancelling war-risk coverage, pushing freight rates sharply higher.
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Iran named Mojtaba Khamenei as successor to his father, Supreme Leader Ali Khamenei, who was killed in initial U.S.-Israeli strikes over the weekend. The appointment signals hardliners remain in control, a development unlikely to ease tensions. U.S. President Donald Trump has called the son “unacceptable,” further dimming prospects for de-escalation.
Asian Markets Sink Amid Energy Import Vulnerability
Japan’s Nikkei 225 index closed down 5.2%, extending last week’s 5.5% drop, as the country — a major oil and gas importer — braced for higher energy costs. China’s CSI 300 blue-chip index fell roughly 1%, though consumer prices rose 1.3% year-on-year in February, a pre-conflict pickup that could complicate Beijing’s efforts to combat disinflation if oil prices remain elevated.
U.S. stock futures also declined, with S&P 500 futures down 1% and Nasdaq futures off more than 1%. European shares tumbled to their lowest in more than two months, with the StoXX 600 closing down 1.63% after a 5.5% weekly loss — its worst in nearly a year. The risk-off mood has taken hold, with investors fleeing to the U.S. dollar while shunning currencies of net energy importers like Japan and much of Europe.
The dollar strengthened 0.4% to 158.385 yen, outweighing the yen’s safe-haven appeal. The euro slipped 0.5% to $1.1557. J.P. Morgan analysts noted that sustained energy-price increases should further bolster the dollar while pressuring currencies in Central and Eastern Europe.
Bond Yields Climb on Inflation Concerns
In bond markets, inflation fears trumped safe-haven buying, pushing yields higher. The 10-year U.S. Treasury yield rose 5 basis points to 4.175%, up from a recent trough of 3.926%. Interest-rate futures slipped as traders reassessed central bank paths. U.S. CPI data due Wednesday is expected to hold at 2.4% annually, while the Fed’s preferred core PCE measure on Friday is forecast at 3.0% — well above the 2% target — with upside risks from energy costs.
The Federal Reserve is widely expected to hold rates at its March 18 meeting, per CME FedWatch. For the European Central Bank and Bank of England, markets have scaled back easing expectations: the BoE now has only a 40% chance of one more cut, compared with two or more before the conflict intensified.
Gold — typically a safe-haven — fell 1.2% to $5,106 per ounce as the dollar’s strength outweighed risk aversion.
Regional Disruptions and Supply Shock Risks
The conflict has triggered widespread infrastructure shutdowns:
- Saudi Arabia’s Ras Tanura refinery (550,000 bpd) remains offline after a drone strike.
- Iraqi Kurdistan fields (200,000 bpd exports) are suspended as a precaution.
- Israel’s Leviathan and Tamar gas fields are idled, throttling exports to Egypt.
- Iran’s Kharg Island export hub — processing 90% of Iranian crude — faces uncertain damage from explosions.
Qatar halted LNG production, accounting for 20% of global supply, adding to the energy market strain. The disruptions highlight risks to Asia, which sources 60% of its oil from the Middle East. India — importing ~85% of its crude (4.2 million bpd), with half transiting the Strait — faces acute exposure. Rystad Energy’s Pankaj Srivastava warned that even modest price increases “materially affect” India’s energy economics, balance of payments, and rupee stability.
Morgan Stanley estimates every sustained $10/bbl oil rise could shave 20–30 basis points off Asia’s GDP growth, with India particularly vulnerable due to its wide oil/gas balance.
The benchmark index shed 5.5% last week, its worst weekly performance in nearly a year. In bond markets, the risk of rising inflation outweighed safe-haven considerations to shove yields higher globally. Yields on 10-year Treasury notes rose 5 basis points to 4.175%, up from a trough of 3.926% just a week ago.
Central Banks Face Inflation Conundrum
Interest rate futures slipped as investors feared the risk of higher inflation would make it harder for the Federal Reserve to ease policy, though disappointing jobs numbers seemed to argue for stimulus.
The danger of energy-driven inflation has led markets to wager that the next move in rates from the European Central Bank could be up, possibly as early as June. For the Bank of England, markets have shifted to pricing just a 40% chance of one more easing, compared with two cuts or more before the Middle East conflict started.
Nervous investors sought the liquidity of dollars while shunning currencies from countries that are net energy importers, including Japan and much of Europe.