Brent crude oil rose 2% today and was on track for a record monthly rise while global stocks were in limbo as investors dug in for a Gulf conflict they fear will bring a surge in inflation and the risk of recession to much of the globe.
Shares across Asia, a region more reliant on Gulf oilexports, fell, with Japan's Nikkei index closing down 2.8%.
European stocks clawed back some ground and Wall Street futures pointed to gains, although they were slim given a recent sell-off.
Investors were assessing conflicting developments. USPresident Donald Trump issued another warning to Iran on social media today to open the Strait of Hormuz or risk US attacks on its oil wells and power plants.
Pakistan said it was preparing to host "meaningful talks" to end the conflict in coming days, even though Tehran accused Washington of preparing a land assault as it builds up forces in the region.
"Oil is the lightning rod right now," said Eren Osman, managing director of wealth management at Arbuthnot Latham, adding that a reopening of the Strait of Hormuz was the key to calming world markets.
"The biggest challenge for us as investors today is that you've got one of the widest ranges of potential outcomes," he said, adding he did not expect a prolonged conflict as he believed Trump had a "pain threshold" for market losses.
Madison Cartwright, senior geo-economics analyst at Commonwealth Bank of Australia, said Iran's control of the Strait of Hormuz, conduit for about a fifth of the world's oil and liquefied natural gas, nonetheless gave it little incentive to concede, and that the bank expected the war to run until at least June.
The clampdown on the Strait has sent prices for oil, gas, fertiliser, plastic and aluminium surging, along with fuel for planes and shipping.
Prices for food, pharmaceuticals andpetrochemical products are all set to rise.
Aluminium prices surged to four-year highs after Iranian airstrikes on two major Middle East producers over the weekend.
That is particularly bad news for Asia. MSCI's broadest index of Asia-Pacific shares outside Japandropped 1.8%. European stocks were last up 0.6%, while S&P 500 futures and Nasdaq futures pointed to similar-sized gains.
"The longer the Strait remains closed, the sharper the drawdown in buffer supplies that could spark dramatic increases in the price of crude oil, natural gas and other commodities,"warned Bruce Kasman, global head of economics at JPMorgan.
"A scenario in which the Strait remains closed for an additional month would be consistent with oil prices rising towards $150 a barrel and constraints on industrial consumers of energy supply."Brent crude rose 2% to $114.85 a barrel, on course for a 59% gain in March that would exceed the monthly jump that followed Iraq's invasion of Kuwait in 1990. US crude climbed 1.5% to $101.16.
FED IN FOCUS AS PAYROLLS LOOM
The inflation threat has led investors to revise up the outlookfor interest rates almost everywhere.
US Federal Reserve ChairJerome Powell will have a chance to air his own views at an event later today and the influential head of the New YorkFed, John Williams, is also talking.
Data on US retail sales, manufacturing and payrolls this week will provide an update on how the economy is faring.
The energy shock, combined with pressure on fiscal budgets from higher borrowing costs and the need for more defence spending, has hit sovereign bond markets. Ten-year US Treasury yields were last at 4.372%.
Heightened volatility in markets has tended to benefit the US dollar as the world's most liquid currency. The US is also a net energy exporter, giving it a relative advantage over Europe and much of Asia.
The dollar index was trading near a 10-month high at 100.25, broadly flat on the day. Yet more warnings of possible intervention from the Japanese authorities did see the dollar ease 0.5% to 159.5 yen. It crossed the 160 barrier last week for the first time sinceJuly 2024, when Japan last acted to buy yen.
The euro dipped 0.1% to $1.1493, not far from a March trough of $1.1409.
In commodity markets, gold gained 1.1% to $4,542 an ounce, having recently drawn scant support as a safe haven or as a hedge against inflation risks.
