Asian Markets Slide as Oil Prices Surge on Fresh Gulf Attacks, Fed Decision Looms

Stock markets across Asia opened the week sharply lower on Monday as a fresh escalation in Gulf tensions sent oil prices surging, compounding investor anxiety just days before a widely expected US interest rate decision. The sell-off touched nearly every major regional index, underscoring how quickly renewed conflict risk in the Middle East can ripple through global markets already on edge over the direction of monetary policy.

Oil Spikes On Renewed Gulf Attacks

The immediate trigger was a new round of attacks targeting Saudi Arabia and shipping lanes in the Gulf, which reignited fears of a prolonged disruption to energy supplies from the region. Brent crude jumped roughly 3 percent to trade near $107.84 a barrel, extending a rally that has now pushed prices up close to 9 percent over the past week alone. Adding to the sense of deepening instability, a planned meeting in Oman aimed at negotiating the reopening of the Strait of Hormuz, a critical corridor for global oil shipments, was postponed, removing a near-term off-ramp that traders had been counting on to ease the standoff.

Regional Indices Retreat Sharply

The impact on equities was immediate and broad-based. Japan's Nikkei 225 slid 1.7 percent as energy-import-dependent exporters came under pressure, while South Korea's Kospi bore the brunt of the selling, tumbling roughly 3.3 percent. The MSCI Asia-Pacific ex-Japan index, a broader gauge of regional sentiment, also slipped about 0.8 percent. The synchronized declines reflect how tightly linked energy costs remain to corporate earnings expectations and consumer spending forecasts across import-reliant Asian economies, several of which are still working through the inflationary aftershocks of earlier oil-price shocks this year.

Fed Decision Adds To The Pressure

Compounding the mood, investors are now pricing in a roughly 86 percent probability that the US Federal Reserve will raise interest rates by 25 basis points at its meeting this Wednesday, following a hotter-than-expected US inflation reading. Markets are also anticipating the possibility of a further hike in December, which would mark a notable shift after a period in which rate-cut expectations had dominated investor positioning. The prospect of tighter US monetary policy tends to strengthen the dollar and tighten global financial conditions, a combination that historically weighs on emerging and Asian markets by raising the relative cost of capital and pressuring currencies.

Adding another layer to the week's central bank calculus, the Bank of Japan is also widely expected to raise rates at its own meeting on Friday, a move that would mark a further step away from the ultra-loose policy stance Japan maintained for years. A BOJ hike alongside a Fed hike in the same week would represent a rare simultaneous tightening move by two of the world's most closely watched central banks, and traders are bracing for the volatility that combination could bring to currency and bond markets alike.

What Investors Are Watching Next

For now, the interplay between oil supply risk and central bank policy is likely to remain the dominant theme steering Asian markets through the week. Any further escalation around the Strait of Hormuz, or a surprise in either the Fed's or the BOJ's rate decisions, could trigger fresh bouts of volatility. Conversely, signs of de-escalation in the Gulf or a softer-than-expected Fed stance could offer markets a reprieve after a difficult start to the week.

This is an original summary based on public reporting. See our editorial policy for how we source, write, and correct our stories.