The Australian sharemarket is set to plunge at the start of the week as escalating conflict in the Middle East fuels fears of a prolonged war that could drive inflation sharply higher through surging oil prices.
Futures for the S&P/ASX 200 were pointing to a fall of about 1.8% ahead of Monday’s opening bell.
The local market has already been under heavy pressure since the United States and Israel began striking Iranian targets just over a week ago, with the ASX 200 index shedding 3.8% last week
Concerns about a broader escalation intensified over the weekend, rattling international markets and sending oil prices sharply higher. Brent crude surged nearly 30% to above US$90 a barrel on Friday as traders priced in significant risks to global supply.
The rally was mirrored in the North American benchmark West Texas Intermediate, which jumped roughly 35% over the week.
Oil prices continued to climb in early Asian trading on Monday, with crude briefly pushing above $100 a barrel as the conflict began to disrupt production and shipping through the Strait of Hormuz, one of the world’s most important energy corridors.
Roughly 20 million barrels of oil pass through the strait each day under normal conditions, representing a critical artery for global energy markets.
However, shipping activity and production flows have been severely curtailed since hostilities escalated.
Heightened tensions in the region have raised fears of a supply shock that could reignite global inflation pressures, potentially complicating the outlook for central banks already grappling with elevated price growth.
Wall Street ended last week sharply lower as investors digested the growing geopolitical risks alongside weaker-than-expected economic data.
In the United States, the conflict combined with a softer February jobs report to push all three major equity benchmarks into the red on Friday.
The Dow fell 1%, the S&P 500 dipped 1.3%, and the Nasdaq Composite lost 1.6%.
The situation in the Middle East appeared to deteriorate further over the weekend. Iranian state media reported that an oil storage facility in southern Tehran had been struck in a joint U.S.-Israeli attack on Sunday morning.
In response, Iran’s Islamic Revolutionary Guard Corps signalled it would retaliate by targeting a refinery in the Israeli city of Haifa, raising fears that attacks on critical energy infrastructure could escalate further.
Meanwhile, major oil producers in the Gulf began adjusting output levels as disruption spread across the region. Kuwait and the United Arab Emirates reportedly started reducing oil production as instability in the Strait of Hormuz intensified.
The tightening supply outlook has amplified concerns that global energy markets could face prolonged disruptions if the conflict continues to escalate, particularly given the strategic importance of the strait for international shipping.
On the bond markets, local yields moved higher, with the 10-year rate rising 1.2% to 4.945%, while the two-year yield edged up 0.2% to 4.458%.
