Asian markets experienced a sharp decline on Monday amid a 48-hour ultimatum issued to Iran over the Strait of Hormuz.
Trump issued an ultimatum on Saturday, which said that the United States would “obliterate” Iran’s power facilities unless Tehran fully reopened the strait within 48 hours.
Iran responded by warning that any such strike would bring attacks on US energy infrastructure in the Gulf and a longer shutdown of Hormuz.
The escalation of tensions left traders across Asia dealing with a bigger problem at the start of the week, as there was no visible diplomatic off-ramp, but a clear deadline was approaching.
Nikkei 225, Kospi fell over 5%
The larger part of the impact was seen in Japan and South Korea, where investors rushed to square-off postions amid rising geopolitcal tenisons.
Japan’s Nikkei 225 fell around 2,000 points (-5%) at the open, and the broader Topix dropped about 4.4%.
The selloff came as Japan relies on the Middle East for about 95% of its oil imports, with around 70% passing through Hormuz.
The trend was similar in South Korea, where Kospi slumped roughly 6%, and the Kosdaq lost about 5% as investors dumped export-heavy and energy-sensitive names.
South Korean indexes briefly triggered a circuit breaker after the Kospi 200 futures index fell more than 5%, a rare intervention that captured the speed of the selloff.
Hong Kong’s Hang Seng index fell 2.6% to 24,595.54 while the Hang Seng Tech Index dropped 2.4%.
Elsewhere, losses were broad but more contained. Australia’s ASX 200 was down about 2.4%, and Chinese markets were also weaker.
The CSI 300 Index tumbled 1.8%, and the Shanghai Composite Index retreated 2%.
Indian markets opened with the trend as the Sensex was down 1,520.65 points or 2.04% at 73,012.31, while the Nifty was down 464.65 points or 2.01% at 22,649.85.
The oil shock behind the rout
While the main engine behind the sell-off in equities is oil, the recent developments has seen the story stretch beyond crude.
Last week, Iran attacked Qatar’s main LNG facility, which supplies a major part of European gas.
The Qatar authorities closed the facility, and as per the reports, the repairs are expected to take three to five years.
That matters because it turns an oil shock into a broader fuel shock, with consequences for power prices, fertilizers, shipping, and industrial production across Asia.
At the time of writing this report, the Brent crude prices are hovering around $107 a barrel, while the WTI crude stood at $98.91 per barrel, up 0.69%.
For markets like Japan and South Korea, the damage is not theoretical.
Higher crude feeds directly into transport costs, utility bills, and input prices, and then quickly into earnings expectations.
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