Oil importing markets’ share prices slide amid Iran energy crisis
Oil importing markets across Asia and Europe suffered a sharp stock sell-off in early morning trading, after crude oil prices rocketed to their highest levels in four years amid the US-Israel war with Iran.
The price of oil breached the $100 (£74.90) mark for the first time since the 2022 energy crisis, which was triggered by the Russian invasion of Ukraine.
Brent crude, the international benchmark for oil, surged over 25 per cent to $118 per barrel, marking the commodity’s biggest one-day change in six years, before falling to $96.80.
The surge came as war in the Middle East continued to impact key oil infrastructures and fields, leading nations to slash production, while traffic through the Strait of Hormuz, which sees around a fifth of the world’s oil supply, has been halted.
Kuwait and the UAE are reducing production, as storage facilities fill rapidly with no way to ship them out, while Iraq has cut output from its main oil fields and Qatar was forced to reduce liquefied natural gas (LNG) production after attacks on facilities.
Richard Hunter, head of markets at Interactive Investor, said: “With the Strait of Hormuz effectively closed for traffic, and with further cuts to production coming from Kuwait and Iraq, the supply shock is truly reverberating and, if left unchecked, will likely lead to a global economic slowdown.
“The possibility of stagflation – a toxic mix of slowing growth and rising inflation – or even recession are currently on the minds of increasingly concerned investors.”
While economies across the world have been struck by the war’s energy woes, major importers have seen their share prices drop sharply as investors continue to come to terms with what this means for their investments.
Asian markets slide
Asian markets bore the brunt of the conflict during Monday trading, with those who have a particular reliance on imported energy being hit the worst. As much as 90 per cent of oil that passes through the strait of Hormuz is imported to the region, leaving it acutely exposed to supply disruption.
Japan’s flagship index, Nikkei 225, fell 5.2 per cent to 52,728.72, with the country reportedly considering tapping into national reserves.
India’s Sensex tumbled 1.7 per cent to 77,566.1, with state-run refiner Indian Oil suffering a 4.4 per cent drop to 161.2 rupees (£1.31).
It was also a bad day for South Korea’s benchmark index, with losses being so heavy that trading was halted for the second time in less than a week.
The tech-heavy index, which had shot into investor’s eyesights last year as they looked to diversify away from the concentrated US markets, suffered a 5.9 per cent decline to 5,251.8.
Susannah Streeter, chief investment strategist at Wealth Club, urged investors to “keep a cool head” and resist the temptation to flee or switch stocks, adding that for large companies “upsets are part of the journey”.
European shares skid
Losses extended across major European equities markets, which woke up to see their share prices sliding.
Germany’s DAX 40 slipped 1.6 per cent to 23,164.9, as the country’s reliance on the Gulf made the index vulnerable to supply shocks.
The Euro Stoxx 50, a basket of Europe’s 50 leading blue-chip firms, was down 1.6 pe er cent.
While investors are likely to react to the drops across stock markets, analysts have urged investrors ot rely on short term gains which could impact long term wealth building.
Dan Kemp, founder and chief executive of Portfolio Thinking and former chief investment officer at Morningstar, told Morning Wire: “So often we are tempted to try and make day by day investment decisions, but we know the short term is completely unpredictable and over the long term is where we’re going to see returns in our investments.
“There are pockets of markets around the world that we should be looking out for that may offer great long term value… all investment decisions are long term investment decisions.”
Kemp noted the sell off in Asia may also be attributed to the fact that it was the first region to open for trading on Monday, meaning it was the initial location investors could pull capital from, and could be why certain markets saw a sharp drop.