World markets face mounting risks as US-Iran tensions intensify

The prolonged conflict in the Middle East is beginning to weigh heavily on global markets, affecting currencies, fuel prices, airlines, and bond markets as investors assess the broader economic implications.

From sharp declines in Asian currencies to the collapse of a low-cost US airline, the economic effects of the conflict are spreading across regions and sectors.

Analysts warn that higher oil prices, inflation concerns, and market volatility could continue if tensions remain elevated.

Asian currencies face growing pressure

Asian currencies have recorded some of the steepest losses in foreign exchange markets since the United States and Israel attacked Iran in February.

The region remains particularly vulnerable because around 80% of sea-borne oil trade passing through the Strait of Hormuz is usually bound for Asia.

Any disruption to oil supplies directly affects energy-importing economies across the continent.

Indonesia’s rupiah fell to a record low on Tuesday, while the currencies of India and the Philippines also touched historic lows.

Other currencies, including those in South Korea, Thailand and Malaysia, have also weakened significantly.

Central banks across the region have already intervened in currency markets, either directly or through state-owned banks, and are considering additional measures to stabilise their currencies.

Yen weakens as oil prices climb

Japan is also facing renewed pressure as rising oil prices push the yen lower.

The Japanese currency had already been weakened by low interest rates and concerns surrounding Prime Minister Sanae Takaichi’s borrowing-led growth strategy.

Japan imports nearly 95% of its oil from the Middle East, leaving the economy highly exposed to energy price increases.

Authorities have stepped into markets as the yen approached the 160-per-dollar level in an effort to discourage speculative trading.

Food inflation risks return

The war is also reviving concerns about food inflation after volatility linked to Russia’s invasion of Ukraine had started to ease.

The conflict is tightening fertiliser supplies while simultaneously increasing energy costs.

Analysts also warned that weather risks linked to El Nino could worsen supply pressures further.

The Baltic shipping index has climbed to its highest level since 2023, highlighting growing transportation costs.

HSBC global economist James Pomeroy said emerging economies could face the biggest impact because food carries a larger weighting in inflation calculations.

Fuel prices raise inflation concerns

Consumers are already seeing the impact through rising fuel costs.

Average US gasoline prices have risen from around $3 to more than $4.50 per gallon, according to motorist advocacy group AAA.

US gasoline prices have surged 42% since late 2025, while diesel prices have jumped 52% as the conflict disrupted global oil and fuel supplies.

Zurich Insurance Group chief market strategist Guy Miller warned that further increases could create political and economic pressure in the United States.

At the same time, inflation expectations are rising.

The European Central Bank’s Consumer Expectations Survey showed one-year inflation expectations climbed to 4.0% in March.

Airlines and bond markets under strain

The airline industry is also facing severe pressure as jet fuel prices have surged nearly 84% since the conflict began.

Ultra-low-cost carrier Spirit Airlines halted operations earlier this month, blaming rising fuel costs for its collapse.

Although some airlines believe supply disruption risks are beginning to ease, airline stocks continue to underperform broader markets.

European airline shares have fallen roughly 14% this year, while the broader market has gained 3%.

Meanwhile, bond markets remain fragile after an initial selloff forced investors to reassess interest rate expectations.

In the United States, benchmark 10-year Treasury yields are hovering around 4.40%, around 40 basis points above levels seen before the conflict began.

Analysts warned that further increases could unsettle equity and credit markets.