Asian Stocks Slide as Oil Tops $100, Middle East Conflict Fuels Inflation Fears

Asian stock markets tumbled on Friday as crude oil surged above $100 per barrel, heightening concerns over global inflation and prompting investors to reassess the outlook for interest rates. Escalating tensions in the Middle East disrupted key shipping routes, sending energy prices sharply higher and weighing on financial markets worldwide.

Brent crude traded near $100.85 a barrel after jumping 7% overnight to a two-month high of $102. The rally followed attacks by Iran-backed Houthi forces on Saudi oil tankers in the Red Sea, adding to supply concerns created by Iran’s near-closure of the Strait of Hormuz. With both major oil transit routes under pressure, Brent has climbed nearly 40% this month.

The conflict intensified as U.S. forces launched airstrikes on Iran while Tehran targeted neighboring countries hosting U.S. military bases. Investors increasingly fear that prolonged geopolitical tensions could keep oil prices elevated and reignite inflationary pressures.

Nigel Green, CEO of deVere Group, said the disruption to two of the world’s busiest shipping corridors has significantly altered the inflation outlook. He warned that the recent decline in inflation, which gave central banks room to ease policy, could quickly reverse if energy prices remain elevated.

Inflation concerns were further amplified after the U.S. administration announced higher tariffs on imports from 60 trading partners. Bond markets reacted sharply, pushing 30-year U.S. Treasury yields close to their highest level since 2007, while European government borrowing costs reached levels last seen in 2011.

Markets are now pricing in a one-in-three chance that the Federal Reserve could raise interest rates as early as next week, with a September hike fully priced in. The European Central Bank kept rates unchanged but investors see roughly a 70% probability of a September increase.

MSCI’s broad Asia-Pacific index outside Japan dropped 1%, Japan’s Nikkei lost 2.9%, and South Korea’s KOSPI fell 3.7%. Nasdaq futures edged higher after strong Intel earnings, but broader sentiment remained weak as investors digested heavy AI spending by Alphabet and Tesla.

Higher Treasury yields supported the U.S. dollar, with the dollar index climbing to 101.46. The Japanese yen hovered near a 40-year low around 163.89 per dollar despite repeated intervention warnings from Japanese officials. Analysts said rising oil prices, expectations of tighter U.S. monetary policy, and the yen’s fading safe-haven appeal have overshadowed intervention risks.

Meanwhile, precious metals weakened as gold slipped to around $4,043 an ounce after a steep overnight decline, while silver remained under pressure following a sharp selloff.