Oil tops $85 as US-Iran conflict deepens; Asian markets tumble

Oil prices climbed to their highest level in nearly a month on Tuesday as the conflict between the United States and Iran intensified around the Strait of Hormuz, raising concerns over global energy supplies. At the same time, Asian stock markets fell after a sharp sell-off on Wall Street, where AI-related shares led the decline.

Global financial markets remained under pressure on Tuesday as rising geopolitical tensions in the Middle East pushed crude oil prices higher while triggering a broad sell-off in Asian equities.

Brent crude rose to around $85 per barrel, extending Monday's gains after recording its biggest single-day jump since May 2020. US West Texas Intermediate (WTI) crude also advanced to nearly $80 per barrel, reflecting growing fears that the escalating conflict could disrupt global energy supplies.

Why are oil prices rising?

The latest rally follows renewed military action involving the United States and Iran around the Strait of Hormuz, one of the world's busiest energy shipping routes.

The United States announced the reinstatement of a naval blockade targeting Iranian shipping, while President Donald Trump said Washington would protect commercial vessels using the Strait of Hormuz and proposed charging a 20% fee for providing security.

Iran rejected the proposal, insisting it remains the "guardian" of the strategic waterway and warning that it would not allow US interference in its management.

Adding to market concerns, the United Arab Emirates said two of its oil tankers were struck by Iranian cruise missiles while sailing through Omani waters. The incident reportedly killed one Indian crew member and injured eight others.

The Strait of Hormuz handles roughly one-fifth of the world's oil trade, meaning any disruption can quickly affect global fuel prices, inflation and economic growth.

Asian markets track Wall Street lower

Asian stock markets followed Wall Street lower as investors moved away from riskier assets.

Japan's Nikkei 225 fell around 1%, while South Korea's Kospi dropped more than 3%. China's Shanghai Composite also declined despite stronger-than-expected export data, while Australia's benchmark index closed lower. Hong Kong's Hang Seng was little changed.

US stock futures also pointed to another weak session after Wall Street closed sharply lower overnight.

AI stocks lose momentum

Technology shares, particularly companies linked to artificial intelligence, remained under pressure.

The Nasdaq Composite dropped 1.6%, underperforming both the S&P 500 and the Dow Jones Industrial Average.

Nvidia fell around 3.5%, while Micron Technology lost more than 4%, as investors questioned whether the rapid growth and high valuations of AI companies can be sustained.

The latest decline comes after months of strong gains in AI-related stocks, which have driven much of the rally in US equity markets.

Why investors are worried

Higher oil prices increase production and transportation costs worldwide, raising the risk of inflation remaining elevated for longer.

If inflation continues to rise, central banks such as the US Federal Reserve may delay interest rate cuts or even tighten monetary policy further. Higher borrowing costs typically weigh on business investment, consumer spending and stock market performance.

For India, sustained increases in crude oil prices could also weaken the rupee, increase the country's import bill and put upward pressure on domestic inflation.

What markets will watch next

Investors are expected to closely monitor:

• Further military developments involving the US and Iran.
• Oil tanker movements through the Strait of Hormuz.
• Brent crude and WTI prices.
• Corporate earnings from major US banks including JPMorgan Chase, Goldman Sachs, Citigroup, Wells Fargo and Bank of America.
• Signals from the US Federal Reserve on interest rates.

With geopolitical tensions showing little sign of easing, analysts expect volatility in both oil and equity markets to remain elevated in the coming days.