Middle East War Rattles Global Markets as Oil Tops $100 and Dollar Surges

Asian equity markets struggled to find clear direction on Thursday as investors navigated a rapidly shifting geopolitical landscape in the Middle East. Iran signaled conditional willingness to consider a U.S.-backed ceasefire proposal, offering a rare but uncertain diplomatic opening after weeks of escalating conflict.

Japan's Nikkei gained 0.6%, while South Korean equities fell 1.2%. The broader MSCI Asia-Pacific index (ex-Japan) slipped 0.23%, heading toward an 8.7% monthly decline — its worst performance since October 2022. The U.S. dollar remained near multi-week highs, on pace for a 2% monthly advance, reinforcing its role as the go-to safe-haven currency during periods of global uncertainty.

The nearly month-long conflict, ignited by joint U.S.-Israeli military strikes on Iran in late February, has effectively closed the Strait of Hormuz — a critical chokepoint responsible for roughly one-fifth of global oil and LNG shipments. The resulting supply disruption drove Brent crude above $100 per barrel, with futures trading at $103.35, reflecting a staggering 42% monthly surge. Energy analysts warn that structurally elevated oil prices may persist regardless of ceasefire negotiations.

Soaring energy costs have reignited inflation concerns worldwide, prompting traders to abandon expectations of a Federal Reserve rate cut in 2025. European Central Bank President Christine Lagarde echoed similar concerns, hinting at potential rate hikes if energy-driven inflation proves persistent across the eurozone.

Currency markets reflected the broader risk-off mood. The euro held at $1.1562 and sterling traded at $1.3358, while the Japanese yen lingered near 159.43 per dollar — a level closely monitored as a possible trigger for government intervention. Gold, despite its traditional safe-haven appeal, dropped roughly 14% this month — its sharpest monthly fall since October 2008 — as surging yields and a stronger dollar weighed heavily on the precious metal.