Observing a market that was doing well a few weeks ago abruptly collapse is incredibly unsettling. The numbers scrolling across screens outside Tokyo’s and Seoul’s trading floors reveal a story that investors had hoped to avoid this quarter: sharp losses, rising energy prices, and a Middle East conflict with no immediate end in sight. After holding its breath, the Asian stock market finally let out the worst possible breath.
The Nikkei 225 in Japan has lost almost 13% in March alone. It’s not a correction. That is more akin to a crisis signal. The situation thousands of miles away in the Persian Gulf, where Iran’s capacity to threaten the Strait of Hormuz has driven oil prices into territory not seen in years, is largely responsible for the Nikkei’s decline.
| Category | Details |
|---|---|
| Region Covered | Asia-Pacific (Japan, South Korea, China, Australia, Hong Kong, India) |
| Major Indexes | Nikkei 225, KOSPI, CSI 300, ASX 200, Hang Seng, Nifty 50, Shanghai Composite |
| Current Market Trend | Sharp decline across most major Asia-Pacific markets |
| Primary Trigger | U.S.-Israeli conflict with Iran; Strait of Hormuz disruption |
| Oil Price Impact | Brent crude up ~59% for the month; WTI above $101/barrel |
| Worst Performer (Month) | Japan’s Nikkei 225 — down nearly 13% in March |
| KOSPI Drop (Single Day) | Down over 6.5% in intraday trading |
| Key Economic Risk | Inflation surge, potential recession, rising interest rates |
| Fed Rate Outlook Shift | From 50 bps cuts expected to 12 bps of tightening priced in |
| Reference Website | Reuters Markets |
On Monday, Brent crude surpassed $114 per barrel, recording monthly gains of almost 59%, surpassing even the 1990 surge that followed Iraq’s invasion of Kuwait. Anyone should be stopped in their tracks just by that comparison.
Possibly the hardest hit in a single day was South Korea. At one point during afternoon trading, the KOSPI, which had been the region’s top-performing major index this year, fell more than 6.5%, ultimately ending the day with a 3% loss. Over 9% was lost by Korean Air. Japan Airlines experienced a 6% decline. It turns out that airlines are canaries in this particular coal mine; they are deeply entangled in Middle Eastern transit networks that have practically overnight turned into war zones, and they are extremely vulnerable to both fuel prices and route disruptions.
China’s markets fared a little better, which could be due to either delayed anxiety or a degree of insulation from the immediate energy shock. Depending on the session, the CSI 300 fell between 0.2% and 0.77%, while the Shanghai Composite briefly saw a slight increase. Although it’s still unclear if Beijing’s policy levers are providing enough cushion to withstand months of high oil prices if the conflict continues, it’s possible that they are.
Geographical location and reliance are what make all of this feel especially oppressive for Asia. Middle Eastern energy powers a large portion of the region. Almost all of Japan’s oil is imported. Each of these economies—South Korea, Australia, India—uses fuel that passes through the very waters that are currently in danger to power their industrial bases.
It is not abstract forecasting when Commonwealth Bank of Australia analysts predict that the war will last at least until June, with a tendency toward an even longer conflict. Every factory, shipping company, and consumer in the area is directly warned by that.
Investors seem to have been hoping that the conflict would remain contained, manageable, far away, something that could be priced in and moved past. That hope is dwindling. The Houthis in Yemen launched their first missile strikes on Israel since the conflict started, indicating that it is no longer a bilateral conflict but rather one that is gaining momentum on its own and spreading throughout the region. Even though it has been painful, the market response has been logical. Fear is still fear, even when it is rational.
It’s difficult to ignore how this appears differently depending on where you’re sitting as you watch it play out. The seizure of Iran’s Kharg Island, from which a large portion of Iran’s oil exports originate, is being discussed in Washington. To lessen the blow at the pump for Australian drivers, Prime Minister Anthony Albanese announced in Canberra that the fuel excise on gasoline and diesel would be halved for three months. The number of policy responses is already increasing. This typically indicates that the issue is serious enough to require them.
The Federal Reserve is under intense scrutiny back in the markets. Investors were projecting that the Fed would cut interest rates by about 50 basis points this year just a month ago. The markets are currently pricing in a tightening of roughly 12 basis points. That is a total reversal of the interest rate narrative, and it has a significant impact on all stocks.
Investors are most concerned about the combination of slower economic growth and higher rates brought on by an energy-induced inflation spike. The global head of economics at JPMorgan has cautioned that oil prices could rise to $150 per barrel if the Strait stays closed for another month. The calculations for consumer spending, corporate profits, and central bank patience all drastically shift at that point.
The Bank of Japan complicates an already challenging situation. Policymakers discussed the need for additional rate hikes, according to meeting minutes released on Monday. One member suggested that tightening might need to be accelerated given rising oil-linked inflation. A risk of the BOJ unintentionally lagging behind was mentioned by one official. This kind of pressure from an external energy shock is ill-timed for a nation still negotiating the difficult shift away from decades of extremely loose monetary policy. The tone has changed, but it’s still unclear how aggressively the BOJ will act.
In the meantime, the dollar is getting stronger, as it nearly always does when there is a lot of stress in the world. Last week, the yen surpassed 160 versus the US dollar, a level not seen since Japan’s last currency support intervention in July 2024. Since then, concerns about potential intervention have caused the dollar to decline slightly, but the pressure is still there. A declining local currency increases the cost of everything that passes through a port for nations that import goods valued in dollars.
Surprisingly, Gold hasn’t said much. It is currently trading at about $4,493 per ounce, but it hasn’t increased as much as a conventional safe-haven asset might in such a significant geopolitical crisis. Some observers find that puzzling. It might imply that investors are selling everything liquid to offset losses elsewhere or that the typical appeal of gold is being complicated by the inflation-rate dynamic. In any case, it makes this specific market moment even more peculiar.
Since there isn’t a clear conclusion in sight, there isn’t one to write here. Pakistan claims to be getting ready to hold important diplomatic discussions. Washington is reportedly preparing for escalation while simultaneously hinting at a ceasefire. Every day, sometimes even every hour, markets are adapting to news that comes in before it can be fully processed. Panic is not the dominant emotion for anyone following the Asian stock market at the moment. It’s more draining than panic. It is the gradual realization that this crisis has stabilized and isn’t going away quietly.
