Middle East Conflict: Asia Stocks Fall, Gold Plunges & Inflation Fears Rise (2026)

Asian Markets Plunge as Middle East Conflict Escalates

Asian stock markets experienced a significant sell-off on March 23, and gold prices plummeted, wiping out all of 2026’s gains as tensions in the Middle East continue to escalate. The downturn reflects growing fears of global inflation and potential disruptions to energy supplies, triggered by a 48-hour ultimatum issued by US President Donald Trump to Iran regarding the Strait of Hormuz.

Trump demanded that Iran reopen the vital shipping lane, through which roughly a fifth of the world’s oil and liquefied natural gas flows, or face potential strikes on its power plants. Iran responded with a threat to indefinitely close the strait and target energy infrastructure in the US and Israel, raising the stakes in a conflict now entering its fourth week. The situation has prompted warnings from the International Energy Agency (IEA) that the crisis is “very severe” and surpasses the combined impact of the 1970s oil shocks and the fallout from the war in Ukraine.

The impact on financial markets was widespread. Japan’s Nikkei index fell 3.5%, South Korea’s Kospi index sank 6.5%, Hong Kong’s Hang Seng Index tumbled 3.5%, and the Shanghai Composite Index dropped 3.6%. Singapore’s Straits Times Index closed down 2.2%. The declines signal a broader investor flight from risk assets amid heightened geopolitical uncertainty.

Gold and Oil React to Heightened Risk

The price of gold, traditionally seen as a safe-haven asset, experienced a dramatic reversal. Spot gold plunged as much as 8.8% to around US$4,100 an ounce, while gold futures fell almost 10% to US$4119.10. This decline is directly linked to expectations that central banks will be forced to raise interest rates to combat potential inflationary pressures. As gold generates no interest, investors tend to shift towards interest-bearing assets when rates rise, further weakening demand for the precious metal.

Oil prices initially jumped before reversing course. Brent crude, the international benchmark, initially rose 1.9% but then fell nearly 1.8% to US$113.80 per barrel by late afternoon in Singapore. This volatility underscores the market’s sensitivity to the potential for supply disruptions. The stand-off over the Strait of Hormuz has already effectively halted traffic through the waterway, impacting petrol prices, fertilizer costs, and food production.

Inflationary Pressures and Central Bank Response

Analysts are increasingly concerned about a surge in inflation. The choking off of fertilizer shipments is exacerbating concerns about global food security, while rising energy costs are expected to ripple through the economy. These concerns are prompting speculation that central banks, including the Federal Reserve, may need to reconsider their monetary policies and potentially hike interest rates in 2026, despite previous indications of a possible easing cycle. Federal Reserve Chairman Jerome Powell recently stated the need for further progress on inflation before considering rate cuts.

Martin Schulz, head of the international equity group at Federated Hermes, cautioned against panic but emphasized the need for caution, noting that the longer the conflict persists, the more severe the consequences will be. Shane Oliver, head of investment strategy at AMP, suggested that oil prices could potentially reach US$150 a barrel if the war continues for several weeks, and that restoring normal supply levels will take time due to potential damage to energy infrastructure.

The situation is further complicated by the fact that past oil shocks unfolded over several months, as the full impact became clearer. HSBC analysts have highlighted significant price increases in jet fuel (up 175% in 2026 in Singapore) and liquefied natural gas (up 130% in Asia), as well as soaring costs for bunker fuel used in shipping. These rising costs are expected to translate into higher prices for consumers and businesses alike.

Investors are now bracing for potential moves from central banks in Japan, Europe, and Britain, even as the conflict simultaneously dampens the outlook for global economic growth. The coming days will be critical as the world awaits a response to Trump’s ultimatum and assesses the potential for further escalation in the Middle East.