Asian Markets Slide as U.S.-Israel-Iran Conflict Stokes Inflation Fears

Asian stock markets declined broadly on Friday, as ongoing tensions from the U.S.-Israel war on Iran continued rattling investor confidence across the region. Fears that energy-driven inflation could push the Federal Reserve to hold interest rates higher for longer added further pressure, following a sharp overnight selloff on Wall Street.

S&P 500 Futures edged up 0.4% in early Asian trading after the U.S. announced new waivers on Russian oil imports to help cushion supply disruptions. Despite this, Brent crude remained near $100 per barrel, and most Asian benchmarks were on track for weekly losses.

Japan's Nikkei 225 and South Korea's KOSPI led regional declines, each dropping roughly 1.2% on the day. The Nikkei posted a weekly loss of 3.3%, partly dragged down by Honda Motor, whose shares fell over 6% after the automaker projected an annual loss tied to electric vehicle restructuring costs. India's Nifty 50 was also among the hardest hit, heading for a 2.4% weekly drop.

The core concern weighing on Asian markets is oil supply vulnerability. Iran's blockade of the Strait of Hormuz has amplified fears of prolonged supply outages across a region heavily reliant on Middle Eastern crude. Japan, South Korea, and India are considered the most exposed to these disruptions.

Chinese equities proved more resilient, with the CSI 300 and Shanghai Composite both edging higher on the week. Analysts at OCBC noted that China's significant oil reserves and accelerating transition to electric vehicles and renewable energy provide a meaningful buffer against near-term supply shocks. China imports around 15% of its oil from Iran and this week banned refined fuel exports to address a domestic shortage.

Australia's ASX 200 and Singapore's Straits Times index saw modest moves, though the ASX remained under pressure amid expectations of a 25-basis-point rate hike from the Reserve Bank of Australia.