The global economy faces a "major, major threat" because of the Iran war, the head of the International Energy Agency said Monday even as Asian shares dipped because oil prices continued to climb after US President Donald Trump's latest comments dashed hopes for an early end to the conflict in West Asia.
"No country will be immune to the effects of this crisis if it continues to go in this direction," Fatih Birol told Australia's National Press Club in Canberra on Monday.
He said the crisis in the Middle East has had a worse combined impact than the two oil shocks of the 1970s and the effect on gas markets of the Russia-Ukraine war.
This is Birol’s second warning on the global impact of the war on Iran. Last week, he had told London’s Financial Times that policymakers and markets were underestimating the scale of the disruption with nearly one-fifth of global oil and gas supplies effectively stranded in the Middle East.
His latest comments came as Israel launched a new wave of attacks early Monday against Tehran.
A top American commander also told Iranians to remain in shelters for the foreseeable future, while Iran renewed strikes on its Gulf neighbours and threatened to start hitting their power plants.
Birol said 40 energy assets in nine countries across the region were "severely or very severely damaged."
The official added that he was consulting with governments in Europe and Asia about the prospect of releasing further stockpiled oil.
"We will see, we will look at the markets," he said. "If it is necessary of course we will do it, but we will look at the conditions, we will analyse, assess the market and discuss with our member countries."
As Iran continues its stranglehold on the Strait of Hormuz, Trump gave a 48-hour deadline for Tehran to open the strategic waterway to all ships, saying that otherwise the US would "obliterate" Iran's power plants.
Trump posted the threat to social media early Sunday in Middle East time zones.
Tehran said it would respond to any such strike with attacks on US and Israeli energy and infrastructure assets in the region.
Asian shares dip
Japan's benchmark Nikkei 225 dropped 3.5 per cent to 51,511.75 in afternoon trading. In Taiwan, the Taiex shed 2.5 per cent to 32,722.50. Australia's S&P/ASX 200 fell 0.7 per cent to 8,365.90. In India, too, benchmark indices Sensex and Nifty dropped sharply in early trade. The 30-share BSE Sensex dived 1,555.62 points, or 2 per cent, to 72,977.34 during initial trade. The 50-share NSE Nifty tanked 479.95 points, or 2 per cent, to 22,634.55
South Korea's Kospi dove 6.5 per cent to 5,404.77. Hong Kong's Hang Seng slipped 4.0 per cent to 24,279.23, while the Shanghai Composite declined 3.7 per cent to 3,811.62.
"Trump's ultimatum and Iran's retaliatory warnings point to a widening conflict that keeps energy disruption and market volatility elevated with no clear off-ramp in sight," said Ng Jing Wen, analyst at Mizuho Bank in Singapore.
Higher oil prices, which also shook stock markets on Friday, dashed hopes for a possible upcoming cut to interest rates by the Federal Reserve, analysts said.
Before the war, traders were betting that the Fed would cut rates at least twice this year. Central banks in Europe, Japan and the United Kingdom also recently held their interest rates steady.
The S&P 500 fell 1.5 per cent Friday to close its fourth straight losing week, its longest such streak in a year. The Dow Jones Industrial Average dropped 443 points, or 1 per cent, and the Nasdaq composite tumbled 2 per cent.
In energy trading, benchmark US crude added USD 1.76 to USD 99.99 a barrel. Brent crude, the international standard, gained USD 1.15 to USD 113.34 a barrel. The price of Brent crude has zigzagged lately from about USD 70 per barrel before the war began to as high as USD 119.50.
On Wall Street, roughly three out of every four stocks in the S&P 500 fell on Friday. Stocks of smaller companies, which can feel the pinch of higher interest rates more than their bigger rivals, led the way lower. The Russell 2000 index of smaller stocks fell a market-leading 2.3 per cent.
All told, the S&P 500 fell 100.01 points to 6,506.48. The Dow Jones Industrial Average dropped 443.96 to 45,577.47, and the Nasdaq composite sank 443.08 to 21,647.61.
In the bond market, the yield on the 10-year Treasury finished last week with a jump to 4.38 per cent Friday from 4.25 per cent late Thursday and from just 3.97 per cent before the war started.
The two-year Treasury yield, which more closely tracks expectations for what the Fed might do, rose to 3.88 per cent from 3.79 per cent.
In currency trading, the US dollar rose to 159.53 Japanese yen from 159.22 yen. The euro cost USD 1.1526, down from USD 1.1571.