Middle East conflict rattles Asian markets as South Korea’s Kospi sinks 4% on oil supply fears

Asian markets were mixed on Tuesday as investors weighed the economic fallout from escalating fighting in the Middle East, with South Korea’s Kospi falling about 4% in one of the sharpest regional declines. The selloff came as traders moved away from riskier assets and toward sectors seen as more vulnerable to higher oil prices, inflation, and slower growth. According to Asharq Al-Awsat, the market mood remained fragile amid uncertainty over how long the conflict in Iran would last and whether it could further disrupt energy supplies.

The pressure is being felt most strongly in energy-dependent economies. Mainland Chinese and Hong Kong stocks fell on Monday as investors shifted their attention from US-China talks to the worsening conflict, while Gulf markets also weakened after drone attacks raised fresh security concerns, including an incident involving a nuclear power plant in the United Arab Emirates and Saudi Arabia’s report that it had intercepted three drones. Saudi Arabia’s market index recorded a fifth straight session of losses, underscoring how quickly regional financial markets are reacting to the geopolitical risk.

The energy shock is also rippling through global markets beyond Asia. European stocks fell on Monday as oil prices climbed and bond markets sold off, adding to fears that inflation could rise again just as central banks have been hoping to ease borrowing conditions. In the United States, investors have also become more cautious, with market strategists warning that high valuations in Wall Street stocks may not yet fully reflect the risk of a fresh inflation surge and a renewed jump in yields.

The International Monetary Fund has warned that the situation could pose a broader test for the global economy. IMF Managing Director Kristalina Georgieva said rising oil and liquefied natural gas prices were putting new pressure on growth, inflation and market confidence, particularly in Asia, where major importers such as China, Japan, South Korea and India depend heavily on Middle Eastern energy flows. The IMF has said that a large share of the world’s oil and LNG passes through the Strait of Hormuz, making any disruption there a major concern for global trade and energy security.

For now, the key question for markets is whether the conflict remains contained or turns into a longer disruption that keeps energy prices elevated. That would likely keep pressure on stocks, bonds and currencies, especially in countries that import most of their fuel. Investors are watching closely for signs of further escalation, while policymakers face the more difficult task of balancing inflation risks against slowing growth.