Asian Markets Rally on Hopes for De-escalation in Iran Conflict, Oil Prices Remain Volatile

Asian stock markets surged on Tuesday, tracking a steadier session on Wall Street as investors parsed mixed signals over the potential duration of the ongoing military conflict with Iran. The rally was fueled by a sharp retreat in oil prices from their recent peaks, offering a temporary respite to markets rattled by supply disruption fears.

U.S. futures pointed modestly higher in early Asian trading, while crude oil benchmarks edged up slightly after Monday's historic plunge.

Japan's benchmark Nikkei 225 jumped 2.1% to close at 55,387.75, while South Korea's Kospi led the region with a 3.5% surge to 5,724.30. Hong Kong's Hang Seng gained 0.3%, and the Shanghai Composite inched up 0.1%. Australia's S&P/ASX 200 rose 0.5%, and Taiwan's Taiex climbed a notable 3.9%.

The gains come after a volatile session on Wall Street. The S&P 500 dipped 0.2% on Tuesday, following extreme swings driven by whipsawing oil prices. The Dow Jones Industrial Average fell 34 points, and the Nasdaq composite was nearly flat.

The core driver of market sentiment remains the price of oil and the conflict's impact on the Strait of Hormuz—a critical chokepoint for global energy supplies. Brent crude, the international benchmark, was trading at $85.36 per barrel early Wednesday, down 11% from its settlement price just a day before. U.S. West Texas Intermediate crude was at $83.81.

This retreat from Monday's high near $120—a level not seen since 2022—was triggered by remarks from former President Donald Trump suggesting the conflict was "very complete, pretty much." However, the situation on the ground remains tense as the conflict enters its eleventh day. U.S. Defense Secretary Pete Hegseth promised intensified strikes, while Iran vowed to block regional oil exports "to its enemies." In a late Monday social media post, Trump warned Iran against closing the Strait, threatening a response "TWENTY TIMES HARDER."

Analysts note that markets have historically recovered quickly from geopolitical shocks, provided energy prices do not remain elevated for an extended period. The current hour-to-hour volatility underscores deep uncertainty. Prolonged high oil prices threaten to exacerbate global inflationary pressures, squeezing household budgets and raising corporate costs, which could tip the world economy into a damaging period of stagflation.

In currency markets, the dollar held steady against the yen, while the euro gained slightly against the greenback.

Market Voices:

"The market is breathing a sigh of relief, but it's a very shallow breath," said David Chen, a portfolio manager at Horizon Capital in Singapore. "The oil price drop is a positive signal, but the geopolitical rhetoric is still incendiary. We're not out of the woods yet."

"This rally feels dangerously premature," argued Anya Petrova, an independent market strategist based in London. "Investors are clinging to any vague comment as hope. The fundamental risk of a prolonged supply shock hasn't disappeared. This is classic 'buy the rumor' behavior, and the sell-off could be brutal."

"The data shows regional markets are oversold and reacting to technical factors," commented Kenji Tanaka, a senior analyst at Tokai Research in Tokyo. "The focus now shifts to hard data on inventory flows and whether diplomatic channels are genuinely active behind the scenes."

— With reporting by AP Business Writer Stan Choe.