Asian Markets Slide as Iran Conflict Escalates and Oil Prices Hit Records

Iran conflict fuels oil surge, foreign outflows, and earnings cuts, sending Asian markets lower and raising stagflation fears.

 Asian stock markets opened sharply lower on Monday amid deepening concerns over the five-week-old conflict in the Middle East, which has driven oil prices to their biggest monthly surge in more than three decades and raised fears of prolonged energy inflation across the region. The sell-off followed a bruising session on Wall Street on Friday, where major U.S. indexes posted their fifth straight weekly decline, capping the longest losing streak in nearly four years. Investors grappled with the latest escalation after Yemen's Iran-backed Houthi movement fired ballistic missiles at sensitive Israeli military sites over the weekend, marking the group's first direct involvement in the hostilities that began with U.S. and Israeli airstrikes on Iranian targets on Feb. 28. In a statement, Houthi spokesperson Yahya Saree said the group launched the barrage "in support of Iran and allied Hezbollah forces in Lebanon."
Oil prices extended their rally in early Asian trading, with Brent crude jumping about 3 percent to around $115.98 a barrel and posting a 60 percent gain for the month so far, eclipsing the record monthly rise that followed Iraq's invasion of Kuwait in 1990. West Texas Intermediate crude climbed 2.58 percent to $102.19 a barrel, on track for a 53 percent monthly increase. The surge reflected worries that Iran's control of the Strait of Hormuz could disrupt global energy flows, with analysts warning of even steeper climbs if the waterway remains closed. Bruce Kasman, global head of economics at JPMorgan, said the longer the strait stays shut, the sharper the drawdown in buffer supplies that could spark dramatic increases in the price of crude oil, natural gas and other commodities. He added that a scenario in which the strait remains closed for an additional month would be consistent with oil prices rising toward $150 a barrel and constraints on industrial consumers of energy supply.
The energy shock hit hardest in Japan, where the Nikkei 225 fell 3.97 percent and the Topix lost 3.9 percent, extending March losses to nearly 14 percent. The declines came after the Bank of Japan released the summary of opinions from its March policy meeting, in which one policymaker noted a risk that the central bank might unintentionally fall behind the curve as second-round effects and a rise in underlying inflation stemming from overseas developments are more likely to emerge. Bank of Japan Governor Kazuo Ueda, testifying before parliament, said the central bank was closely watching moves in the yen and suggested that rising import costs due to a weak currency could invite more interest rate hikes. The bank will guide policy appropriately by scrutinizing currency moves and their impact on the economy, Ueda said. South Korea's Kospi plunged more than 3 percent, with the small-cap Kosdaq down nearly 4 percent, as technology shares extended losses from the previous session. Samsung Electronics slid 2.5 percent and SK Hynix fell 4.8 percent after Google's unveiling of a new compression algorithm fueled uncertainty over long-term demand for memory chips tied to artificial intelligence.
Hong Kong's Hang Seng index dropped about 1.5 percent, while China's CSI 300 edged 0.77 percent lower and the Shanghai Composite moved in a narrow range. Australia's S&P/ASX 200 declined 1.46 percent, prompting the government to announce a three-month halving of the fuel excise on petrol and diesel to ease costs at the pump. Prime Minister Anthony Albanese said the tax cut would lower prices by 26.3 Australian cents per litre. Across the broader region, the MSCI index of Asia-Pacific shares outside Japan fell 1.2 percent as investors braced for potential disruptions to global supply chains and higher borrowing costs.
Nowhere was the pressure more evident than in India, where foreign investors dumped a record net $11.7 billion in equities through March 25, putting the month on course for the steepest outflows on record and pushing year-to-date selling past $13 billion. Over the past two years, net outflows from Indian stocks have topped $34 billion, a period in which MSCI's gauge of Indian equities has lagged regional peers in all but two quarters. Globally, funds pulled about $52 billion from emerging Asian equities excluding China since the conflict began, the biggest monthly exodus in data stretching back to 2009. Domestic institutional investors stepped in to absorb much of the selling, pumping more than $13 billion into the market this month, but the benchmark Sensex still dropped 930 points at one stage and the Nifty tested 22,600, closing down about 1.5 percent intraday. Bank and financial stocks led the retreat, with the Nifty Bank index slipping 2.6 percent and lenders including HDFC, ICICI, IDBI and IOB touching 52-week lows. The NSE Volatility Index climbed to a four-year high, underscoring the depth of unease.
Foreign brokerages responded by trimming earnings forecasts for Indian companies and lowering targets for the Nifty index by nearly 12 percent. Goldman Sachs cut its Nifty target to 25,900 from 29,300 and downgraded the market to market weight from overweight, citing a less attractive risk-reward profile amid worsening macro conditions and slowing earnings growth. Citigroup lowered its target to 27,000 from 28,500. Analysts now expect India Inc earnings growth of 8 percent in 2026 and 13 percent in 2027. HSBC pointed to historical patterns showing that a 20 percent rise in oil prices drags down India Inc earnings by 1.3 percentage points, while a 10 percent supply-driven increase in oil leads to about a 1.3 percent decline in the broader equity index. The risk gets compounded by currency weakness, HSBC noted. A 1 percent rupee depreciation tends to translate into a further 1 percent market drag. These relationships are broadly consistent with recent performance: oil has risen about 55 percent since the outbreak of the conflict, while the rupee has depreciated about 3.5 percent, this implies an overall market impact of around 11 percent. BNP Paribas added that a 10 percent increase in oil prices leads to about 35 basis points rise in the current account deficit, warning that prolonged fighting could slow remittances from West Asia and further pressure the deficit.
Portfolio manager Siddharth Chatterjee at Franklin Templeton Investment Solutions captured the prevailing mood. As of now, it is a grim picture and there is no immediate catalyst suggesting it is changing. The India story is losing its luster as weak company earnings and sluggish local demand weigh on the outlook. Cross-asset strategist Anna Wu at VanEck Associates Corp. in Sydney echoed the caution. It is too early to say foreign flows will recover as there is still little clarity on peace talks. She warned that a prolonged conflict could trigger stagflation, delaying any recovery in foreign inflows. Yet some pockets showed resilience. Shares of state-run oil explorer ONGC rose 3 percent, bucking the broader decline as investors rotated toward energy producers that could benefit from higher crude prices.
A notable exception to the regional gloom came in Singapore, where dip-buying by retail investors helped drive the Straits Times Index higher for the week ending March 27 even as tensions persisted. Retail participants snapped up $638 million worth of local shares as of March 24, lifting cumulative net buying in the first quarter to $675 million. Banking stocks including DBS Group, United Overseas Bank and OCBC Bank each gained more than 2.5 percent, while Singapore Airlines recovered nearly 2.5 percent to close at $6.66. Singapore Exchange shares climbed 4.5 percent to $19.67, and AEM Holdings surged 11.5 percent on stronger-than-expected 2025 results and upbeat 2026 revenue guidance. Real estate investment trusts also attracted interest, with CapitaLand Ascendas Reit announcing $1.4 billion in acquisitions including a hyperscale data centre stake and raising funds through an oversubscribed placement. The Asia Pacific Real Assets Association said on March 25 that the region's real estate and Reit markets are expected to remain resilient as safe-haven income assets despite global uncertainty. Singapore stands out as a stable and well-established real estate market across office, logistics, retail and hospitality assets, and that tight supply and robust demand are supporting high occupancy rates and rising rents, said APREA chairman John Lim. The city-state also unveiled plans to position itself as a gold trading hub alongside Shanghai and Hong Kong, developing capital-market products, vaulting standards and a clearing system for large gold bars.
The broader market reaction extended beyond equities. S&P 500 futures fell 0.7 percent and Nasdaq futures dropped 0.9 percent in early Asian hours, while European stock futures pointed to further losses at the open. Ten-year U.S. Treasury yields rose roughly 47 basis points for the month to 4.428 percent, reflecting higher inflation expectations, and the dollar held steady near 160 yen after breaching that level for the first time since July 2024. Gold, often a haven in times of geopolitical stress, slipped 1 percent to $4,445 an ounce. President Donald Trump offered mixed signals, stating that talks with Iran were going well and a deal could be close, while also floating the possibility of U.S. forces seizing Kharg Island, a key Persian Gulf oil export terminal, though he suggested a ceasefire might come quickly. Tehran accused Washington of preparing a land assault, adding to uncertainty.

Senior geo-economics analyst Madison Cartwright at Commonwealth Bank of Australia said Iran's control of the Strait of Hormuz, capacity to disrupt global energy and food markets, and sustained missile and drone capabilities give it little incentive to concede, pressuring the U.S. to escalate. We expect the war to run at least into June, with the risk tilted to a longer conflict. The combination of higher-for-longer energy prices, tighter monetary policy expectations and slowing growth narratives has forced investors to reassess exposure across Asia, which remains heavily dependent on Middle East energy imports. While some domestic buyers have cushioned the blow in India and retail flows have supported Singapore, the absence of a clear resolution path has left markets vulnerable to further volatility. Whether the conflict eases or intensifies will determine if the current oil-driven shock proves temporary or sets the stage for deeper economic adjustments across the region. This is no longer just a market correction; it is an energy-driven macro shock with balance-of-payments implications for Asia. For now, caution remains the dominant theme, with participants watching closely for any diplomatic breakthrough or further escalation in the days ahead.

With reporting by Business Standard, CNBC, Chosun (Chosun Ilbo), Investing.com, Moneycontrol, Reuters, Strait Times, and Times of India.

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