Asian Stocks Fall as Iran War Drives Oil Prices Higher and Fuels Market Uncertainty

Asian stock markets declined on Friday, heading toward a second consecutive weekly loss as concerns over the ongoing conflict involving the United States, Israel and Iran continued to weigh on global financial sentiment.

Investors remain cautious as hopes for a quick resolution to the war fade, pushing oil prices higher and raising concerns about renewed inflation pressures. The uncertainty has prompted traders to shift toward safer assets, strengthening the US dollar while putting pressure on many other currencies.

A regional equity gauge tracking Asia-Pacific shares compiled by MSCI Asia Pacific Index slipped about 1 percent during trading, leaving the index on track for a weekly decline of more than 2 percent.

Japan’s benchmark Nikkei 225 dropped around 1.4 percent, while technology-heavy markets in South Korea also registered notable losses, with stocks there falling close to 2 percent.

The currency market reflected similar caution. The Japanese yen weakened to its lowest level since July 2024, reaching 159.69 against the US dollar before recovering slightly to around 159.41. Japanese officials signalled that authorities could step in to support the currency if necessary, although analysts said intervention may have limited impact while the dollar continues to attract strong demand.

The US dollar has strengthened steadily since the conflict escalated at the end of February, gaining about 2 percent during that period. Investors have increasingly treated the currency as a safe haven amid geopolitical tensions and market volatility.

Energy markets remain a key driver of global financial sentiment. Oil prices have climbed sharply in recent weeks, hovering near $100 per barrel as disruptions to shipping routes and attacks on vessels in the Gulf region threaten global supplies.

Benchmark crude tracked by Brent Crude traded around $100.70 per barrel on Friday morning, while West Texas Intermediate stood near $95.59. Both benchmarks were trading close to $60 per barrel at the beginning of 2026 before the conflict intensified.

Prices eased slightly after the United States issued a temporary waiver allowing some countries to purchase Russian oil cargoes currently stranded at sea, a move intended to stabilise global energy markets.

Market analysts say the possibility of prolonged disruption in the Middle East remains a major concern, particularly after Iran’s leadership threatened to keep the Strait of Hormuz closed to shipping. The narrow waterway normally carries a significant portion of the world’s oil supply.

Rising energy prices are also reshaping expectations for global monetary policy. Traders are scaling back forecasts for interest rate cuts by the Federal Reserve this year. Markets now anticipate about 20 basis points of rate reductions compared with expectations of 50 basis points just a month ago.

Bond markets have also reflected the shift in sentiment. The yield on the two-year US Treasury note recently reached its highest level in six months before easing slightly on Friday.

Investors are now looking ahead to a series of central bank meetings scheduled for next week. Policymakers at the Federal Reserve, Bank of Japan, European Central Bank and Bank of England are all expected to review monetary policy amid heightened economic uncertainty. Economists say most are likely to leave interest rates unchanged for now.

Gold prices edged higher during Friday trading, although the precious metal remains on track for a weekly decline as shifting interest rate expectations continue to influence investor behaviour.

Analysts say financial markets are likely to remain volatile while geopolitical tensions persist and oil prices remain elevated.