Prices of oil soared on Monday, and the dollar strengthened after the United States hit Iran’s nuclear facilities over the weekend.
Asian markets mostly dropped, although Chinese stocks were higher, as traders wait to see whether Tehran could respond or not.
One option on the table would be to potentially create economic havoc by seeking to close the strategic Strait of Hormuz — which carries one-fifth of global oil output.
Iran is the world’s ninth-biggest oil-producing country, with output of about 3.3 million barrels per day. It exports just under half of that amount and consumes the rest.
When trading opened on Monday, Brent and the main US crude contract WTI both jumped more than four percent to hit their highest price since January.
They pared these gains however and by mid-afternoon in Asia both were up around 1.1 percent.
“So far, satellite images reportedly suggest that oil continues to flow through the Strait, which may explain the muted market reaction to the news,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“Many remain optimistic that Iran will avoid a full-blown retaliation and regional chaos, to prevent its own oil facilities from becoming targets and to avoid a widening conflict that could hurt China — its biggest oil customer.”
But “if things get uglier” the price of US crude could even spike beyond $100 per barrel, she said. WTI was trading around $75 per barrel on Monday.
“An oil price shock would create a real negative impact on most Asian economies” as many are big net energy importers, economists at MUFG warned.
Tokyo closed down 0.1 percent, while Seoul fell 0.2 percent, Sydney lost 0.4 percent and Jakarta shed 1.7 percent.
Hong Kong was up 0.6 percent, however, while Shanghai closed 0.7 percent higher. London, Frankfurt and Paris were down in early trade.
The dollar rose against other currencies but analysts questioned to what extent this would hold out.
