Asia Pacific equities fell sharply on Thursday, tracking overnight losses on Wall Street, as renewed military exchanges between Iran and the United States kept oil prices elevated and stoked fears of a wider regional war. The sell off came after Iran attacked Kuwait’s international airport early on Wednesday, just one day after U.S. Central Command announced it had shot down several Iranian ballistic missiles and drones and launched “self defense strikes” on Kish Island in the Persian Gulf. Israeli Prime Minister Benjamin Netanyahu said that both Israel and the United States are prepared to strike Iran again if necessary. “Israel is ready and American forces are ready. I think Iran should take that into account. I think they are taking that into account, but they are playing with fire,” Netanyahu said.
The military escalation fed directly into energy markets. West Texas Intermediate crude futures surged more than 2% to close at $96.02 per barrel on Wednesday, while international benchmark Brent crude rose nearly 2% to $97.81. Both benchmarks eased by roughly 1% in Thursday trading, but remained well above the levels that prevailed before the conflict began in late February. The sustained premium reflects market anxiety that any direct attack on Kuwait, a key U.S. ally and major oil producer, could spiral into a broader conflagration threatening the Strait of Hormuz, through which roughly a fifth of global oil shipments pass.
Equity markets across the region reflected the risk off mood. South Korea’s Kospi dropped 1.24%, though the small cap Kosdaq gained 2.61% as trading resumed after a holiday. Japan’s Nikkei 225 fell 1.77% after hitting a record high in the previous session, while the broader Topix declined 1.33%. SoftBank Group plunged more than 11% on news that it had sold a 3.25% stake in Indian eyewear company Lenskart Solutions in a block deal. Australia’s S&P/ASX 200 shed 1.30%, China’s CSI 300 lost 0.58%, and Hong Kong’s Hang Seng dropped 1.49%. India’s Nifty 50 and BSE Sensex both fell around 0.3%. The synchronized decline underscored how deeply the Iran conflict has embedded itself into global asset pricing, with traders now treating any military flare-up as a direct threat to growth and inflation expectations across Asia’s export dependent economies.
For investors, the week has delivered a sobering reminder that the Middle East war is not a distant geopolitical sideshow but a live factor in portfolio risk. Netanyahu’s warning that the U.S.-Israel alliance stands ready to escalate, combined with Iran’s willingness to strike targets as strategically sensitive as Kuwait’s main airport, suggests that the current cycle of retaliation is far from exhausted. With oil hovering near $98 and central banks from the Federal Reserve to the Bank of Japan already grappling with inflationary pressures, the path of least resistance for Asian markets appears downward until diplomats can produce something more durable than a fragile ceasefire.
