Global markets retreated sharply Monday as escalating tensions with Iran drove crude oil prices above $110 per barrel, threatening to reignite inflationary pressures just as major economies showed signs of stabilizing. U.S. President Donald Trump's warning that "the clock is ticking" on Tehran sent investors fleeing equities for safer assets, with U.S. futures falling and technology stocks leading declines across Asian markets.
The market turbulence comes as stalled negotiations over a permanent end to the Iran war raise concerns about prolonged disruption to global energy flows. The Strait of Hormuz remains mostly closed, compounded by a U.S. sea blockade on Iranian ports imposed last month. Brent crude gained 0.7% to $110.05 per barrel—a stark increase from roughly $70 a barrel in late February before the start of the Iran war.
Energy Security Drives Market Volatility
Trump's social media warning to Iran followed a call with Israeli Prime Minister Benjamin Netanyahu, stating Tehran had better "get moving, FAST, or there won't be anything left of them." The president has set deadlines for Iran and then backed off, leaving investors cautious about the situation in the Strait of Hormuz and its impact on global energy flows, including oil and gas.
A drone strike targeted the United Arab Emirates' sole nuclear power plant on Sunday, sparking a fire on its perimeter. There were no reports of injuries or radiological release, but it highlighted the risk of renewed war as the Iran ceasefire remains tenuous. Benchmark U.S. crude was trading 1% higher to $106.49 per barrel.
"Re-escalation risks are increasing," ING commodities strategists Warren Patterson and Ewa Manthey wrote in a research note. While there has been a pick up on shipping activities over the past week around the strait, they said, "this can change quickly."
Asian Markets Retreat from Records
Tokyo's Nikkei 225 fell 1% to 60,815.95, a decline led by technology-related stocks. It reached all-time intraday high levels last week above 63,000. The yield on the 10-year Japanese government bond surged to as high as 2.8%, its highest level since the late 1990s. That was part of a broader shift toward higher yields as the Bank of Japan gradually raises interest rates and higher energy costs raise expectations of rising inflation. The yield was around 2.55% just one week ago.
Seoul's Kospi climbed 0.3% to 7,516.04 after trading lower earlier in the day. It crossed the 8,000 mark for the first time on Friday, supported by buying of technology shares driven by the boom in artificial intelligence, but later declined partly on profit-taking by investors.
Hong Kong's Hang Seng lost 1.1% to 25,675.18. The Shanghai Composite index edged 0.1% lower to 4,131.53, after China reported weaker-than-expected economic data for April. Australia's S&P/ASX 200 declined 1.5% to 8,505.30. Taiwan's Taiex dropped 0.7%, while India's Sensex fell less than 0.1%.
European and U.S. Markets Under Pressure
In early European trading, Britain's FTSE 100 edged up 0.1% to 10,205.31. France's CAC 40 lost 0.9% to 7,883.42, and Germany's DAX dropped 0.1% to 23,925.82.
The yield on the U.S. 10-year Treasury was at around 4.60%, up from 4.47% last Thursday and sharply higher than the nearly 4% level it was holding at before the Iran war. On Friday, the benchmark S&P 500 dropped 1.2% from the record it set the day before. The Dow Jones Industrial Average fell 1.1% and the technology-heavy Nasdaq composite lost 1.5%.
Diplomatic Efforts Show Limited Results
The pair of ING strategists also noted that the oil market was reacting to the lack of tangible results on the Iran war after last week's widely-watched summit between Trump and Chinese President Xi Jinping in Beijing, even as the White House said both the U.S. and China had agreed that the Strait of Hormuz must remain open.
U.S. officials had hoped that Beijing could use its influence, given its economic ties with Iran, to help broker a peace agreement and reopen the strait. Trump said last week in an interview that Xi told him China "would like to be of help" in negotiating an end to the war. So far it's been unclear how Beijing might do that.
In other dealings early Monday, the U.S. dollar rose to 158.82 Japanese yen from 158.62 yen. The euro was trading at $1.1645, up from $1.1622.
Why This Matters:
The surge in oil prices to $110 per barrel represents a direct threat to the global economic recovery and household budgets across developed economies. Energy costs feed directly into inflation expectations, potentially forcing central banks to maintain higher interest rates longer than anticipated—a dynamic already visible in Japanese bond yields reaching levels unseen since the late 1990s. The closure of the Strait of Hormuz, through which a significant portion of global oil flows, demonstrates the vulnerability of market-based economies to geopolitical disruption. For American consumers and businesses, sustained energy price increases translate to higher costs for transportation, manufacturing, and everyday goods. The failure of diplomatic efforts, including last week's summit between Trump and Xi Jinping, to produce concrete results underscores the limits of multilateral negotiation when national security interests diverge. Markets are pricing in prolonged instability, with Treasury yields rising sharply and technology stocks—engines of recent growth—leading declines across major exchanges.