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With crude prices climbing and geopolitical tensions intensifying, regional markets are bracing for fresh bouts of volatility.
Stock Market
Asian equities slid for a second consecutive session as escalating conflict in the Middle East dented investor sentiment and revived concerns of an energy-led inflation shock. With crude prices climbing and geopolitical tensions intensifying, regional markets are bracing for fresh bouts of volatility.
The MSCI Asia Pacific Index fell as much as 2%, adding to Monday’s 1.7% drop after US and Israeli strikes on Iran and Tehran’s retaliatory action against neighbouring countries. South Korean stocks led the regional decline as trading resumed after a holiday, with the Kospi plunging up to 4.1%. Japan’s Nikkei 225 slipped 2.3%, while S&P 500 e-mini futures were down 0.6%, reflecting persistent global unease.
On Wall Street, markets steadied after a choppy overnight session. The S&P 500 erased early losses to close flat, while the Nasdaq Composite rose 0.4% as investors bought into the dip. Despite the rebound, uncertainty over the geopolitical outlook continues to weigh on sentiment.
Further unsettling markets, an official from Iran’s Revolutionary Guards reportedly declared the closure of the Strait of Hormuz to marine traffic and warned that vessels attempting to pass could be targeted. The waterway is a critical conduit for global oil flows, making it a major flashpoint for energy markets.
Brent crude futures climbed another 2% to $79.22 on Tuesday, building on Monday’s sharp rally. In gas markets, benchmark European and Asian LNG prices surged about 40% in a single session, highlighting deepening fears of supply disruptions.
Should Asian markets brace for a deeper selloff?
According to Invesco, Asia remains especially vulnerable to sustained increases in oil prices given its heavy reliance on imported energy and high degree of trade openness.
“Asia remains the most vulnerable region globally to sustained increases in oil prices due to its heavy reliance on imported energy and high trade openness. A prolonged geopolitical shock that disrupts Gulf exports could materially influence the region’s macro outlook,” the brokerage said.
While geopolitical developments remain difficult to predict, Invesco warned that extended tensions could pose downside risks to regional growth. If oil prices remain elevated for a prolonged period, Asia may face weaker economic expansion and rising macro-stability pressures.
The firm noted that the economic fallout will largely depend on how long oil prices stay high. Although higher crude typically heightens inflation risks for major importers such as South Korea and Taiwan, Invesco expects central banks to respond cautiously.
“While higher oil prices increase upside risks to inflation for large energy importers such as Korea and Taiwan, central banks are likely to downplay supply-driven price pressures,” it said.
In many Asian economies, fuel prices are regulated, which could limit the immediate pass-through to consumers. However, the fiscal burden may rise as governments absorb higher import costs.
From an investment perspective, Invesco flagged Thailand, India, South Korea and the Philippines as particularly exposed due to their dependence on oil imports, while Malaysia, as a net energy exporter, could be relatively better positioned. Currencies such as the Indian rupee and Korean won may face near-term pressure.
Despite the near-term risks, Invesco maintained a cautiously constructive view on equities.
“I expect minimal impact on Asian equity markets and would view any downdraft as a potential buying opportunity,” it said.
The firm added that the ongoing semiconductor cycle, supported by robust AI-driven capital expenditure, remains a structural pillar for the region. Even if growth slows temporarily due to higher oil, policymakers may respond with monetary easing or fiscal stimulus.
For now, markets remain highly sensitive to headlines. The path of crude oil prices — and the duration of the conflict — will determine whether the current slide deepens into a broader rout or proves to be another short-lived geopolitical shock.
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March 03, 2026, 10:42 IST
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