Global stock markets are reaching record highs despite ongoing Middle East energy crisis risks, with Asian markets leading the charge while European markets remain below pre-war levels. According to CNN, Asian countries are heavily reliant on oil imports from the Middle East that have largely stalled since the Iran war, yet their stock markets are surging in recent weeks. South Korea's benchmark Kospi index and Taiwan's Taiex both hit record highs on Wednesday, while Japan's benchmark Nikkei 225 hit a record high last week. The S&P 500 and Nasdaq Composite in the US also both clinched record highs on Wednesday, demonstrating how the AI-driven rally has overshadowed some of the risks from the war with Iran. As CNN reports, different regions have different potential tailwinds, but like the US, much of Asia is poised to benefit from the AI capex cycle.
Market veterans are warning that investors may be underestimating the long-term economic fallout from the Middle East energy crisis, even as global equities reach record highs. According to veteran strategist David Roche from Quantum Strategy, the current rally is being driven by optimism around artificial intelligence spending, resilient US economic data, and expectations that geopolitical tensions will eventually ease. However, he cautioned that AI-led capital expenditure continues to fuel optimism across Wall Street, with companies spending 20% of capital expenditure to the tune of $700 to $800 billion annually. As reported by The Economic Times, Roche noted that the US economy has remained resilient with inflation not accelerating sharply, but warned that markets are focusing on near-term strength while ignoring structural vulnerabilities in the oil market. He explained that "You have AI which is spending 20% of capital expenditure to the tune of $700 to $800 billion a year and you have Donald Trump's umpteenth proposal to solve everything which troubles the world including the Middle East. So naturally, you have a kind of a bull market."
The market response to the Iran war has been significantly different across regions, with European markets struggling to reclaim record highs while Asian markets surge despite energy import dependencies. According to CNN, Germany's Dax is still down more than 1% since the war began and is roughly flat on the year, while Europe's benchmark STOXX 600 index is down nearly 2% since the war began, though it's up 5% this year. By contrast, energy-exporting countries in South America have gotten a boost from higher oil prices, with Brazil's Bovespa Index up 16% this year despite being roughly flat since the war began. As CNN reports, "Asia doesn't have energy, but it has AI. Latin America doesn't have AI, but it has energy. Europe doesn't have much of either," highlighting the divergent advantages across regions. Asian markets are reacting well to the latest peace efforts and the chipmaker momentum, with South Korea's Kospi gaining nearly 76% in 2025, its best year since 1999, and already up 75% so far this year.
The global AI boom is particularly benefiting semiconductor companies and related infrastructure, with artificial intelligence, semiconductor companies and data center-related companies accounting for about 50% of the weight of Japan's Nikkei 225 according to JPMorgan Chase. Samsung Electronics soared this week to surpass $1 trillion in market value, becoming the second Asian company after Taiwan Semiconductor Manufacturing Company to hit this milestone. Taiwan's Taiex is up 16% since the war began and up 42% this year, with Taiwan in April becoming home to the world's sixth-largest stock market. As CNN reports, semiconductor chips are in high demand because of the push to build AI infrastructure, which has particularly benefited markets in Asia. The Strait of Hormuz effectively closed at the start of March, choking off a fifth of the global oil supply, but markets have rebounded sharply, with Japan's Nikkei 225 up 1% since the war with Iran began and up 18% so far this year.
Roche warned that falling reserve levels and tightening oil supplies could become a major concern by late August. According to his analysis, the crisis is evolving gradually in the United States but may hit the rest of the world much faster because many countries lack sufficient energy inventories. He emphasized that if global oil supplies shrink significantly, the impact may extend beyond higher fuel prices to actual shortages at gas stations. As reported by The Economic Times, Roche stated that world GDP could fall between 3% and 6% if oil supply disruptions worsen materially, warning that "the issue will not just be the price at the pump, the issue will be there will be no gas in the pump." He noted that "At this point in time, the issue will not just be the price at the pump, the issue will be there will be no gas in the pump," highlighting the severity of potential supply disruptions.
