Intensifying US-Iran tensions entered their fourth week, with hostile rhetoric from both sides triggering a significant sell-off of risk assets in Asia-Pacific markets on Monday, March 23. Japan's Nikkei 225 index fell nearly 5% at one point, while the Topix index dropped 4.4%. South Korea's Kospi index plummeted over 6%, the Kosdaq small-cap index fell nearly 5%, and Kospi 200 futures dropped more than 5%, triggering a brief trading halt. Australia's S&P/ASX 200 declined 2.4%, while Hong Kong's Hang Seng Index and the mainland's CSI 300 opened nearly 2% lower. The collective plunge in Asia-Pacific equities reflects extreme investor panic over the spillover effects of the Middle East energy crisis, with energy-import-dependent markets like Japan and South Korea hit hardest.
A 48-hour ultimatum issued by former US President Donald Trump was set to expire on Monday evening Washington time. The demand called for Iran to unconditionally reopen the Strait of Hormuz, threatening to destroy Iran's power grid otherwise. In response, Iranian Parliament Speaker Mohammad Bagher Ghalibaf stated that any US-Israeli attack on Iranian power stations would prompt immediate retaliation against Gulf energy and water supply facilities, causing "irreversible" damage and leading to "long-term" oil price increases. On Sunday, Ghalibaf escalated warnings further, declaring that financial institutions holding US Treasury bonds would be considered legitimate military targets, equivalent to military bases, claiming "US Treasury bonds are stained with the blood of Iranians." This escalation into financial warfare significantly heightened market uncertainty, accelerating investor flight from risk assets.
Oil prices remained volatile at elevated levels during early Asian trading hours on Monday. US crude initially surged 3% to $101.50 per barrel, its highest since March 16, before quickly retreating to around $96.75. Prices then fluctuated upward during Asian and European hours, currently trading near $100.09 per barrel, up approximately 1.88% on the day. The continued closure of most shipping through the Strait of Hormuz and threats of mutual destruction of energy infrastructure keep driving safe-haven premiums higher. The oil price rebound indicates renewed market concerns over supply disruptions. Although expectations of a potential successful resolution to the ultimatum provided some downward pressure, geopolitical risks dominate, limiting the downside for oil prices.
Goldman Sachs significantly raised its oil price forecasts, projecting Brent crude to average $110 per barrel in March-April (up from a previous $98), and US crude to average $98 in March and $105 in April. The revision is based on an assumption that Strait of Hormuz traffic would remain at just 5% of normal levels for an extended period, taking six weeks to gradually recover over one month. Analysts suggest prices will continue rising during this period until investors are confident that long-term disruptions can be ruled out. The forecast underscores market worries about a prolonged Strait crisis, with structurally higher oil prices becoming a mainstream expectation.
The price spread between Brent and US crude widened to over $14, hitting a multi-year high. Chris Verrone, Chief Market Strategist at Strategas Research, noted this differential might signal "the peak intensity of this oil crisis," with elevated Brent prices prompting traders to price in a more prolonged conflict. The widening spread reflects that Middle East supply disruptions impact the international benchmark far more than US domestic supplies, leading to higher import costs and more significant imported inflation pressures for Asia and Europe.
The Iran conflict, now in its fourth week, has escalated into the financial realm with Iran's parliamentary speaker designating holders of US debt as targets. Markets are extremely tense as the deadline for the 48-hour ultimatum passes. Monday's sharp sell-off in Asia-Pacific equities, with Japan's Nikkei and South Korea's Kospi both down over 5% and a temporary trading halt in South Korea, highlights the high sensitivity of energy-import-dependent Asian economies to the Middle East crisis. Goldman Sachs' revised oil price forecast, assuming long-term Strait traffic at just 5%, and the Brent-US crude spread hitting a multi-year high, indicate that geopolitical risk premiums are now the dominant market force. Asian economic growth, inflation expectations, and monetary policy flexibility all face severe tests. Without a diplomatic breakthrough in the conflict, prolonged high oil prices and stock market turbulence could become the "new normal."
As of 14:24 Beijing time, US crude continuous contract was reported at $100.12 per barrel.
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