Asian markets rallied after oil prices dropped sharply, driven by comments from US President Donald Trump suggesting the conflict with Iran could end soon. The recovery marks a reversal from early losses across the region.
Brent crude fell dramatically from Monday's peak of $119.50 a barrel to approximately $91.70 following Trump's remarks that the war on Iran was "very complete, pretty much." The oil decline eased investor concerns about prolonged energy supply disruptions. South Korea's Kospi index jumped 6%, while Japan's Nikkei 225 rose 2.5% and Hong Kong's Hang Seng closed up 2%.
The Middle East tensions had initially spiked oil prices as concerns grew about potential disruptions to global energy supplies. Approximately one-fifth of global oil and seaborne gas tankers pass through the Strait of Hormuz, which has been effectively closed for a week. However, Trump's comments offered reassurance to markets worried about extended conflict and sustained energy price increases.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, noted that "what initially looked like a one-way surge in energy costs and the inflation headaches that come with it has started to stabilise, offering some much-needed breathing room."
European markets also responded positively to the de-escalation signals. The FTSE 100 opened about 1.4% higher, while the Stoxx Europe 600 index rose 1.5%.
Despite the market recovery, uncertainty remains about the conflict's trajectory. Trump stated "we have won in many ways" but added "not enough," signaling the situation remains fluid. He also warned Iran via social media that any actions blocking the Strait of Hormuz would result in retaliation "twenty times harder."
Iranian officials have responded with their own threats, with Tehran declaring it would not allow oil exports if US and Israeli attacks continued, according to state media reports.
To manage energy supply concerns, Trump indicated the administration would waive some oil-related sanctions temporarily. The move, made after Trump spoke with Russian President Vladimir Putin, could complicate US efforts to maintain sanctions on Moscow over Ukraine. The Trump administration previously permitted Indian refiners to temporarily purchase Russian oil for 30 days.
French President Emmanuel Macron suggested several countries could deploy ships to escort tankers through the region once the conflict's most intense phase concludes.
Despite the price decline from Monday's peaks, oil continues trading approximately 25% higher than levels before the conflict began. Several governments have taken action to address energy concerns, with Croatia, Hungary, South Korea, and Thailand implementing fuel price caps. The Philippines ordered public officials to reduce air conditioning and travel, while Bangladesh closed universities early and advanced holiday periods to conserve electricity and fuel.