Oil prices climbed while global stocks fell as the US-Israel conflict with Iran intensified, disrupting energy flows and raising fears of prolonged economic pain.
HONG KONG: Oil prices extended gains and global equities fell on Tuesday as investors monitored an escalating conflict in the Middle East. The United States and Israel continued to bombard Iran, while Tehran launched further strikes on neighbouring countries.
The attack has upended regional energy flows, with the crucial Strait of Hormuz effectively closed off. About a fifth of global oil transits through this waterway, fuelling fears of a fresh energy crisis that could ramp up inflation.
Market moves have been comparatively mild amid hopes the crisis will be short-lived. Analysts warned, however, that the longer it continues the more painful it would be for the global economy as supply chains are hit and prices surge.
US President Donald Trump said the war was going “substantially” ahead of schedule. He stated it could go on for more than four weeks.
Trump for the first time laid out objectives which included destroying Iran’s missiles, navy and nuclear programme. The goals notably did not include toppling the Islamic republic itself.
Iran has responded by unleashing missiles and drones across the Middle East. Targets have included Lebanon, Saudi Arabia, Qatar and Dubai.
Tehran has also threatened explicitly to drive up global energy costs. A general in Iran’s Revolutionary Guards threatened to “burn any ship” seeking to navigate the Strait of Hormuz.
“We will also attack oil pipelines and will not allow a single drop of oil to leave the region,” he warned. “Oil price will reach $200 in the coming days.”
That sent oil prices soaring nearly 14% on Monday before easing slightly. European natural gas prices spiked almost 40% after Qatar’s state-run energy firm said it had halted liquefied natural gas production.
Crude rose at least 1% on Tuesday. The rise in energy costs could give central bankers a headache as they look to bring down inflation while also cutting interest rates.
“A spike in energy prices creates a dilemma for central banks,” said Rodrigo Catril at National Australia Bank. “Stagflation makes central banks very uncomfortable.”
Chris Weston at Pepperstone added that the longer the Strait of Hormuz disruption persists, the greater the risk to regional infrastructure. “Gulf producers do have storage capacity, pipelines, and tanker alternatives, but these are not unlimited,” he said.
Equity markets mostly retreated, extending losses from Monday. Seoul sank more than 2% as investors returned from a long weekend.
Tokyo, Hong Kong, Shanghai, Sydney, Wellington, Taipei and Jakarta were also sharply lower. Airlines were again among the biggest losers across Asian markets.
The US State Department has urged Americans to leave all of the Middle East from Egypt eastward.
