Oil prices rise and Asian shares fall amid Mideast conflict
Brent crude rose 17 percent as Middle East conflict disrupted energy flows. Asian markets fell on concerns that higher fuel costs will drive global inflation.
Asian markets faced a sharp downturn in early trading as surging energy prices fueled inflationary fears amidst an intensifying conflict in the Middle East. Global investors sought liquidity in the United States dollar while equity futures across the region plummeted, reflecting concerns over rising living costs and potential interest rate hikes.
Brent Crude Oil jumped 17% to reach $108.73 per barrel, following a 28% surge in the previous week. U.S. crude similarly advanced by 19% to $108.33. The price spike comes as Iran announced Mojtaba Khamenei as the successor to Supreme Leader Ali Khamenei, indicating a continuation of hardline policies a week into the nation's conflict with the United States and Israel.
With tankers avoiding the Strait of Hormuz, analysts warn of prolonged high energy costs. Bruce Kasman, chief economist at JPMorgan Chase & Co., highlighted the global economy's vulnerability to disruptions in Middle Eastern energy flows.
The near-term scenario is a near-term spike towards $120 bbl followed by moderation as the conflict soon subsides.
Kasman noted that without a decisive political resolution, prices could remain elevated at $80 per barrel through mid-year, potentially reducing annual global economic growth by 0.6% and increasing consumer prices by 1%. He warned that a sustained escalation could push oil beyond $120 and trigger a global recession.
On Wall Street, S&P 500 futures dropped 1.6%, while Nasdaq futures fell 1.7%. In Japan, Nikkei futures tumbled to 52,400, a significant decline from the previous cash close of 55,620. Bond markets also felt the pressure, with 10-year Treasury note futures sliding 13 ticks as inflation risks overshadowed safe-haven demand.
In currency markets, the USD/JPY pair firmed 0.3% to 158.35 as investors moved away from energy-importing nations, including Japan and much of Europe. Conversely, the EUR/USD slipped 0.7% to $1.1537. Gold prices eased 0.6% to $5,140 per ounce, as traders reportedly liquidated positions to cover losses in other asset classes.
