Asia-Pacific markets posted broad declines on Thursday as fresh US strikes on Iran and retaliatory attacks tested the shaky ceasefire in the Middle East war. According to latest reports, stock markets across Asia saw losses with Hong Kong, Taipei and Sydney closing more than 1% lower. Tokyo and Seoul experienced more moderate declines, while Shanghai was the sole major exchange to buck the trend, finishing up 0.1% at 4,098.64. In Europe, London fell nearly 1% while Paris was down 0.4% during morning trading, with Frankfurt remaining flat. The drops came after a strong day for global stocks on Wednesday, as investors had been bullish on artificial intelligence and looked past conflicting headlines on Iran.
The latest military developments represent the most serious strikes since a ceasefire was agreed in April, with an American official telling AFP that the military shot down four Iranian drones and struck a control centre in the southern port area of Bandar Abbas. As per AFP, these actions were described as 'measured, purely defensive, and intended to maintain the ceasefire'. Tehran's state media confirmed that Iranian forces fired at four ships attempting to cross the strait, while Kuwait said its air defences responded to missile and drone attacks. The Guards stated that following morning aggression by the invading US military, the American air base that served as the source of the attack was targeted at 4:50am (0120 GMT). These clashes have thrown into question talks aimed at formally ending the war that began on February 28 with US-Israeli strikes on Iran.
The latest military escalation has significantly impacted ongoing diplomatic efforts between the United States and Iran, with conflicting reports creating market uncertainty. Iranian state television claimed Wednesday that Tehran had obtained a draft framework for a memorandum of understanding with the United States that would eventually reopen the Strait of Hormuz to commercial shipping and lead to a withdrawal of US military forces from Iran's vicinity. However, the White House quickly pushed back, calling reports of a finalized framework a 'complete fabrication', while President Donald Trump stressed that no agreement would move forward unless it met all US demands. The disconnect highlights what increasingly appears to be a two-track negotiation where both governments are trying to project leverage and avoid appearing desperate for a deal. Financial markets are clearly leaning toward the view that negotiations are moving forward, with oil prices initially falling sharply on hopes of a diplomatic breakthrough before stabilizing as traders weighed the risk of additional military exchanges.
The persistent spike in energy prices has threatened several major Asian economies that rely on oil shipments from the Middle East. Oil prices initially fell sharply on Wednesday as traders interpreted the latest headlines as evidence that at least partial reopening of Hormuz shipping lanes could eventually occur, with Brent crude falling to roughly $94 a barrel while US crude slipped below $89. However, oil prices climbed roughly 2% on Thursday as renewed military action near the Strait of Hormuz revived supply disruption fears after the prior session's sharp selloff. Economists warn that central banks may have to raise interest rates if inflation worsens as a result of the war, increasing borrowing costs and potentially weighing on economic growth. The Strait of Hormuz normally handles roughly one-fifth of global oil and LNG shipments, making even limited clashes in the region highly significant for global energy and inflation expectations.
