Middle East Conflict Escalates: Markets Plunge as Trump Issues Ultimatum to Iran
Asia-Pacific markets experienced a sharp sell-off on Monday, with major indexes in Japan and South Korea falling more than 5%, as investors fled risk assets amid escalating conflict in the Middle East, now in its fourth week. The volatility follows a direct ultimatum from President Donald Trump regarding the Strait of Hormuz and retaliatory threats from Iran.
Trump’s Ultimatum and Iran’s Response
President Donald Trump stated on Saturday that the U.S. Would “obliterate” Iran’s power plants if Tehran did not fully reopen the Strait of Hormuz – a critical waterway for global energy flows – within 48 hours. Associated Press reports that this ultimatum prompted a strong response from Iran.
Iran countered with threats to target energy infrastructure and desalination facilities in the Gulf region should the U.S. Carry out its threat. Mohammad Bagher Ghalibaf, Iran’s Parliament speaker, warned on Saturday that attacks on Iranian power plants would “immediately” be met with retaliatory strikes on energy and oil infrastructure across the region. He further stated that critical infrastructure would be considered legitimate targets, potentially leading to sustained increases in oil prices. HuffPost
Ghalibaf extended the threat to include entities purchasing U.S. Treasurys, suggesting that those financing the U.S. Military budget would also be considered legitimate targets alongside military bases.
Market Reaction and Oil Prices
Despite the heightened tensions, crude oil prices remained relatively stable in early trading on Monday. Brent crude experienced a slight decrease of 0.25% to $111.97 per barrel as of 7:16 p.m. EST, while U.S. West Texas Intermediate fell 0.6% to $97.64 per barrel. NBC News
However, the spread between Brent and WTI exceeded $14 a barrel, the largest gap in years. Chris Verrone, chief market strategist at Strategas Research, suggested to CNBC’s “Squawk Box Asia” that this widening gap could indicate the peak intensity of the oil crisis and may prompt traders to price in a longer-lasting conflict.
Asia-Pacific Market Decline
Japanese markets were hit particularly hard, with the Nikkei 225 declining nearly 5% and the Topix dropping 4.4%. South Korea’s Kospi plunged over 6%, prompting a brief trading suspension after the Kospi 200 futures index fell by more than 5%. Australia’s S&P/ASX 200 declined 2.4%, while Hong Kong’s Hang Seng Index and the mainland CSI 300 both dropped nearly 2% on the open.
U.S. Market Futures
Overnight in the U.S., stock futures were relatively unchanged. The Dow Jones Industrial Average was flat, the S&P 500 shed 0.1%, and Nasdaq Composite futures pulled back by 0.2%. The three major indices concluded the previous week lower, with the S&P 500 falling below its 200-day moving average for the first time since May and declining by over 1.5%. The Dow, experiencing its first four-week losing streak since 2023, and the Nasdaq each fell around 2% for the week.
— CNBC’s Lisa Kim and Fred Imbert contributed to this report.