Financial markets are experiencing significant turbulence. Asia-Pacific equities opened broadly lower on Monday, yet exhibited extreme divergence in sector performance. The Nikkei 225 index opened down 1.5% and subsequently extended its losses to 2%, at one point plunging over 1,200 points. The aviation transport and mining sectors showed starkly contrasting performances. Australia's benchmark index initially fell 0.88% before sharply paring losses. New Zealand's NZX 50 index dropped over 1.5% before reducing its decline to under 1%.
Concurrently, US and European stock index futures are trading lower across the board, with most declines exceeding 1%. A critical question for markets is the duration of the conflict. In a video statement on March 1, US President Donald Trump declared that the United States and Israel will continue military operations against Iran until all objectives are achieved. Iranian Foreign Minister Hossein Amir-Abdollahian stated that Iran will decide when and how this war of aggression, imposed by the US and Israel, will conclude.
In early trading, the broader Asia-Pacific market appeared weak, with the MSCI Asia Pacific Index down 1.1%. Japan's TSE Air Transportation Index fell 4.2%, while Japan's Mining Index rose 3.5%. Australia's resource-heavy index, although lower, was only down approximately 0.4%. This suggests markets have entered a risk-off mode, but systemic liquidity remains intact as structural divergence becomes apparent.
There are no signs of de-escalation. According to a CCTV news report, the US military stated earlier that three American service members were killed in military actions against Iran. The three reportedly died from Iranian counterstrikes on a US base in Kuwait. President Trump subsequently posted a video statement on social media vowing "revenge" and acknowledging that further US casualties were possible. He affirmed that military action against Iran "remains in full force until all our goals are achieved," threatening members of Iran's Islamic Revolutionary Guard Corps and police to lay down their arms "or face certain death," while again encouraging regime change within Iran.
In a social media post, Iranian Foreign Minister Amir-Abdollahian stated that Iran has studied US military failures over the past two decades, and that bombing Tehran would not degrade Iran's war capabilities. He claimed Iran's decentralized, distributed "mosaic defense" system enables it to determine when and how the war ends.
A key market variable is emerging. Some analysts suggest that severe military escalation will drive a broad shift of capital into classic defensive sectors like utilities and healthcare, which typically hold up well during economic turmoil. Meanwhile, high-risk growth stocks and economically sensitive industrial and financial shares could face selling pressure.
Goldman Sachs has placed the current real-time risk premium for crude oil at $18 per barrel. This corresponds to the bank's assessment of the impact of a complete, six-week disruption of tanker traffic through the Strait of Hormuz. The firm stated this risk premium equates to the market pricing in a year-long disruption of 2.3 million barrels per day in global supply. This premium assessment is based on a 15% weekend surge in the IG Group Ltd. WTI retail price. Goldman Sachs noted, "While our forecast risks are skewed to the upside, history suggests price spikes driven by geopolitical shocks and/or temporary supply disruptions can be short-lived."
Rob Thummel, a portfolio manager at Tortoise Capital, commented, "The question is what effect Iran's response will have on global oil supply—at least in the short term, and perhaps longer-term." He added that any price spike would likely be brief if supply is not severely disrupted. In a scenario Thummel considers less probable, a prolonged closure of the Strait of Hormuz could push oil prices above $100 per barrel.
Michael Kantrowitz, Chief Investment Strategist at Piper Sandler & Co., stated, "The stock market could completely shift into a mode where oil prices are the primary driver. Until oil prices stop rising, the stock market will remain under pressure."
The Iranian Foreign Minister stated last night that Iran currently has no intention of closing the Strait of Hormuz nor plans to disrupt navigation there. Several nations have also indicated plans to increase production, yet international oil prices surged significantly this morning. Some analysis points out that with market rumors of Lloyd's withdrawing "war risk insurance," tankers cannot sail without coverage. Therefore, oil price may no longer be the most critical variable; the signal most worthy of observation is "when insurers will resume underwriting."
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