Nikkei 225 crashes as oil shock and war fears rip through Asia

Asian stocks fell on Tuesday as a fresh escalation in the US-Iran conflict pushed oil to a one-month high and revived fears that an energy shock could force central banks to keep borrowing costs elevated.

MSCI’s broadest gauge of Asia-Pacific shares outside Japan dropped 1.7%, while Taiwan’s benchmark slid to a one-month low and South Korean shares swung sharply.

Japan’s Nikkei 225 lost about 0.8%, and S&P 500 futures edged 0.3% lower.

Brent crude rose 1.7% to $84.72 a barrel after touching $85.64, its highest level since mid-June.

Hormuz threat puts energy risk back at centre stage

The sell-off followed President Donald Trump’s announcement that the US would restore a blockade on Iranian shipping and seek a 20% payment on cargo moving through the Strait of Hormuz.

The waterway is a crucial route for Gulf energy exports, making any disruption a direct threat to global fuel supplies and inflation.

Oil had already surged almost 10% on Monday as renewed fighting restricted tanker traffic.

The S&P 500 closed 0.8% lower, while the Nasdaq Composite sank 1.6%, led by another retreat in chip shares.

Analysts said the market reaction reflected the difficult combination of an energy shock and the prospect of tighter monetary policy.

Fed concerns deepen before inflation data

Rate expectations moved higher after Federal Reserve Governor Christopher Waller warned that persistently elevated core inflation could require tighter policy in the near term.

Waller said core PCE inflation had risen to 3.4% in May from 3% at the end of 2025, leaving the Fed vulnerable if price pressures fail to ease.

Futures markets assigned a 43.3% probability to a quarter-point increase at the Fed’s July 28-29 meeting, up from 34.2% on Friday.

The 10-year Treasury yield rose to about 4.62%.

Investors will now focus on the June US consumer price index, due at 8:30 am in Washington, followed by Fed Chair Kevin Warsh’s semi-annual testimony before the House Financial Services Committee.

The data and Warsh’s comments will help determine whether the oil shock strengthens the case for another rate rise.

China trade strength offers limited shelter

Mainland Chinese shares outperformed the wider region after June trade figures exceeded forecasts.

Exports jumped 27% from a year earlier, while imports rose 36%, supported by demand for AI-related technology, semiconductors and electric vehicles.

The CSI 300 still fell about 0.4%, underlining how geopolitical risk outweighed the stronger data.

BNP Paribas strategists said China’s export momentum remained dependent on overseas demand and trade rules, leaving the recovery exposed to any slowdown or new barriers.

Technology shares remained the weakest link elsewhere. SK Hynix fell as much as 5.6% in Seoul after Monday’s record plunge, extending the volatility that followed its Nasdaq debut.

The move showed how quickly enthusiasm around AI can reverse when oil, rates and geopolitics move against richly valued growth stocks.