Asia-Pacific markets fell sharply on Monday, with major indexes in Japan and South Korea down more than 5% as investors fled risky assets amid an escalating conflict in the Middle East that entered its fourth week.
President Donald Trump said on Saturday he would “destroy” Iran’s power plants if Tehran failed to fully reopen the Strait of Hormuz – a vital artery for global energy flows – within 48 hours.
Iran retaliated, threatening to target energy infrastructure and desalination plants in the Gulf if the US followed through on its ultimatum.
Iranian Parliament Speaker Mohammad Bagher Ghalibaf said on Saturday that attacks on the country’s power plants would be “immediately” met with retaliatory strikes on energy and oil infrastructure across the region.
“Critical infrastructure and energy and oil infrastructure throughout the region will be seen as legitimate targets and irreversibly destroyed, and oil prices will rise for a long time,” Ghalibaf said on Xu.
On Sunday, Ghalibaf extended the threat to holders of U.S. Treasuries, warning financial entities that buy U.S. Treasuries and “fund the U.S. military budget” would be considered legitimate targets, along with military bases.
Crude oil prices surged in volatile trading on Monday. Brent crude reversed earlier losses and was up 0.65% at $112.68 a barrel by 10:57 PM EST. US West Texas Intermediate crude rose 0.8% to $99 a barrel.
Goldman Sachs sharply raised its oil price forecasts, expecting Brent to average $110 in March-April, up from $98 previously, and WTI to average $98 in March and $105 in April, SEEbiz reports.
“We now assume that Hormuz flow will remain at just 5% of normal levels for more than 6 weeks before a month-long gradual recovery,” the Wall Street bank said, noting that prices are likely to rise during that period until investors gain confidence that a prolonged disruption can be ruled out.
The difference between Brent and WTI exceeded $14 a barrel, the largest price difference between the US and international crude oil benchmarks in years.
That widening gap may indicate “the peak of the intensity of this oil crisis,” Chris Verrone, chief market strategist at Strategas Research, told CNBC’s “Squawk Box Asia” on Monday. Higher Brent crude prices are likely to prompt traders to factor in a more protracted conflict, he added.
Japan’s Nikkei 225 fell nearly 5%, extending losses from the previous session, while the broader Topix fell 4.4%.
South Korea’s blue-chip Kospi fell more than 6% and Kosdaq, a small-cap stock, fell nearly 5%. Korea’s stock market briefly suspended trading after the Kospi 200 futures index fell more than 5%.
Australia’s S&P/ASX 200 fell 2.4%. Hong Kong’s Hang Seng index and the mainland’s CSI 300 fell nearly 2% at the open.
