Asian equities extended recent gains on Wednesday, while oil prices declined, as investors assessed the latest military exchanges between the United States, Israel, and Iran and their potential impact on global energy supplies.
Major bourses in Tokyo, Seoul, Sydney, Singapore, and Wellington rose, following a second consecutive day of advances on Wall Street driven by technology stocks. The Kospi in South Korea surged over 3%, led by chip manufacturers Samsung and SK Hynix, though it remains below pre-war levels. In contrast, Hong Kong and Shanghai slipped.
The market reaction occurred despite ongoing hostilities. The United States confirmed it struck Iranian missile sites near the Strait of Hormuz, a critical choke point for global oil shipments. Iran has retaliated by targeting Gulf neighbours and has threatened to close the strait, through which approximately one-fifth of the world’s seaborne oil and gas passes. Separate attacks were reported in Israel, Beirut, and over Saudi and Kuwaiti airspace.
These actions have heightened concerns over energy supply security. Rystad Energy estimates that only 12.5 million barrels per day (bpd) of Middle Eastern oil production remains operational, down from 21 million bpd before the conflict. The firm warned that if the Hormuz situation persists, export losses could increase significantly in coming weeks as producers face mounting difficulty moving crude.
Despite the supply risks, benchmark oil prices fell. Brent crude dipped 0.7% to $102.66 per barrel, while West Texas Intermediate dropped 1.2% to $95.03. The decline suggests traders are currently factoring in a degree of demand concern and expecting the supply disruption to remain contained.
Analysts cautioned that the cautious market optimism may be fragile. A prolonged closure of the Strait of Hormuz could trigger a sharp spike in oil prices, potentially feeding into broader inflation. This creates a policy dilemma for central banks, which must balance the need to support economic growth with the risk of rising consumer prices requiring higher interest rates.
The Federal Reserve’s policy meeting concluding later Wednesday is in focus. While rates are expected to hold steady, the release of its updated economic projections, or “dot plot,” will be scrutinised for any indication that recent energy price volatility might force a renewed tightening cycle.
The unfolding situation is testing market resilience, with equity investors so far choosing to look through immediate geopolitical noise. However, the durability of this trend is directly tied to the duration of the conflict and the stability of Gulf oil exports.
