Asia stocks fall as oil surge fuels inflation fears

Asian stock markets dropped sharply on Monday as escalating tensions in the Gulf and disruptions to key energy routes pushed oil prices toward a record monthly surge, raising concerns about inflation and a potential global recession. Japan’s Nikkei fell 4.7%, while South Korea’s market lost 4.2%, reflecting heavy investor anxiety across the region.

Oil prices climbed significantly, with Brent crude rising to nearly $116 per barrel, marking a monthly gain of around 60%, while US crude also surged. The spike follows tightening conditions in the Strait of Hormuz, which has driven up costs for energy, fertiliser, and other commodities, with ripple effects expected on food, transport, and industrial goods.

Geopolitical tensions remain high, with Donald Trump suggesting the possibility of targeting Iran’s Kharg Island while also hinting at a potential ceasefire. Meanwhile, Yemen’s Houthi group has resumed attacks on Israel, adding to fears of a wider regional conflict.

Analysts warn that prolonged disruption to energy supplies could push oil prices even higher, potentially reaching $150 per barrel if the Strait remains restricted. Such a scenario would intensify pressure on global supply chains and economic stability, particularly in energy-dependent regions like Asia.

The rising inflation outlook has also shifted expectations for monetary policy, with investors now anticipating interest rate hikes rather than cuts. Attention is turning to comments from Federal Reserve Chair Jerome Powell and upcoming economic data for further signals on how policymakers will respond to the growing economic risks.