Global financial markets extended their losses on Wednesday, as investors remained unsettled despite assurances from US President Donald Trump that Washington was prepared to deploy naval escorts for tankers transiting the Strait of Hormuz. The US military also stated that no Iranian vessels were currently operating in the Arabian Gulf, the Strait itself, or the Gulf of Oman, following the destruction of 17 Iranian ships, including a submarine, since the weekend.

The renewed volatility follows US and Israeli strikes on Iran on February 28 and Tehran’s retaliatory attacks on regional oil and gas infrastructure. Iran subsequently declared the Strait of Hormuz closed, effectively halting traffic through the strategic corridor, which normally handles around one-fifth of global oil supply and significant volumes of liquefied natural gas. Although the waterway remains technically open, tanker movements have largely ceased due to security risks and soaring insurance costs.

Oil prices continued their upward trajectory. Brent crude rose 1.4% on Wednesday to USD 82.53 per barrel, after climbing about 7% the previous day and briefly surging as much as 13% earlier in the week. European gas prices recorded their sharpest single-day increase since the start of the war in Ukraine, jumping more than 50% on Monday. The Dutch TTF front-month contract gained nearly 39% on Tuesday, reaching €61.77 per megawatt-hour, its highest level since early 2023.

Equity markets across Asia registered steep declines. South Korea’s Kospi index plunged as much as 12%, prompting a temporary suspension of trading and marking its sharpest intraday drop since 2008. Japan’s Nikkei 225 fell 3.9%, China’s CSI 300 slipped 1.3%, and India’s Nifty 50 retreated 2%. In the Gulf, stock exchanges in Dubai and Abu Dhabi reopened for the first time since the weekend strikes, with early losses of 4.7% and 3.5%, respectively. Futures indicated a weaker opening on Wall Street as well.

Speaking in Sydney, Goldman Sachs chief executive David Solomon said markets would likely need several weeks to fully assess the economic implications of the US-led military action. He noted that geopolitical shocks tend to generate limited financial fallout unless they materially affect growth prospects, adding that the medium-term trajectory remains uncertain.

Maritime security concerns have intensified. The United Kingdom Maritime Trade Operations agency reported incidents affecting vessels near the United Arab Emirates and Oman. More than 150 ships, including oil and LNG carriers, are currently anchored in and around the Strait. Major marine insurers - among them Gard, Skuld, NorthStandard, the London P&I Club and the American Club - have withdrawn war risk coverage in the Gulf effective March 5, forcing shipping companies to seek alternative policies at significantly higher premiums.

Energy infrastructure across the region has also been hit. Saudi Aramco temporarily shut its largest domestic refinery after it was targeted by Iranian drones. QatarEnergy suspended LNG production following attacks on two key gas processing facilities. Authorities in the UAE reported a fire at an industrial oil site in Fujairah after intercepting a drone strike.

Analysts warn that further targeting of energy installations would pose a greater threat than disruptions to shipping alone. ING said prolonged outages could follow if additional facilities are damaged. At the same time, Deutsche Bank observed that price spikes have been concentrated in short-dated energy contracts, suggesting investors are not yet pricing in a drawn-out crisis.

Oxford Economics’ Bridget Payne argued that the oil market retains sufficient supply buffers, noting that spare production capacity in Saudi Arabia and the UAE could offset losses from Iran. She projected Brent crude would average USD 79 per barrel in the second quarter before easing, contrasting with USD 100 forecasts tied to a protracted conflict. However, she cautioned that rerouting shipments can replace only about one-third of the volumes normally transiting Hormuz.

Asian economies appear particularly exposed. In 2024, 84% of crude and condensate and 83% of LNG passing through the Strait were destined for Asia, with China, India, Japan and South Korea the primary recipients. China, which imports nearly 90% of Iran’s sanctioned oil, relies on the Strait for roughly half of its total oil imports. Although Iranian crude accounts for about 11% of China’s imported supply, a sustained closure of Hormuz would carry broader consequences. Analysts suggest this dependency gives Beijing a strong incentive to encourage stability in regional energy flows.

Europe also faces mounting risks. The euro has weakened against the dollar amid concerns that higher energy costs could fuel inflation and undermine the bloc’s fragile recovery. With Qatari LNG exports disrupted, European buyers may be forced into intensified competition with Asia for cargoes, complicating efforts to replenish gas storage after a cold winter. Market observers note that the scale and duration of supply losses will depend on the extent of infrastructure damage and how long maritime transit remains constrained.

Despite mounting tensions, some analysts maintain that current price dynamics imply expectations of a temporary shock rather than a sustained energy crisis.