Asian equities declined on Friday and remained on track for a second consecutive weekly loss as the ongoing conflict involving Iran continued to push oil prices higher and unsettle global financial markets.
Investor optimism over a possible resolution to the conflict has weakened in recent days, leaving markets increasingly concerned about the potential economic consequences of sustained geopolitical tensions.
The continued rise in crude oil prices has intensified fears of higher inflation and tighter financial conditions across major economies.
Oil prices remained close to the $100 per barrel mark during Friday’s session as Brent crude traded around $100.30 per barrel while U.S. West Texas Intermediate crude hovered near $95.37 per barrel.
The surge in energy prices has become a key driver of global market volatility as investors assess the implications for inflation, corporate profitability and monetary policy.
Across Asia, stock markets reflected growing caution among investors. MSCI’s broad index of Asia-Pacific shares declined about 1 percent during the session and was on course to record a weekly drop of roughly 2.2 percent.
Japan’s Nikkei index also weakened, falling about 1.4 percent, while technology-heavy South Korean equities posted losses of nearly 2 percent.
Market sentiment remained fragile as investors continued to evaluate geopolitical risks and the possibility of prolonged disruptions to energy supply routes in the Middle East.
Currency markets also reflected the shift toward safe-haven assets as the U.S. dollar strengthened further during the week as investors sought safety amid global uncertainty.
The dollar has risen approximately 2 percent since the conflict escalated late last month and is on track for its second consecutive weekly gain.
The Japanese yen weakened significantly against the stronger dollar, touching its lowest level since July 2024 at 159.69 per dollar before stabilizing near 159.41.
Japanese authorities indicated they were prepared to respond if currency weakness intensified, though analysts suggested that intervention may be less effective in the face of strong demand for the dollar.
Meanwhile, European stock futures indicated a slightly higher opening for regional markets, although analysts warned that fragile sentiment could limit gains.
Oil prices eased slightly during Friday’s trading session after the United States issued a temporary 30-day license allowing countries to purchase Russian oil and petroleum products currently stranded at sea.
The measure is intended to ease short-term supply constraints while geopolitical tensions persist.
However, analysts say energy markets remain highly sensitive to developments in the Middle East. Iran has increased its military activities across the region, and its leadership has warned that the strategically important Strait of Hormuz shipping route could be closed.
Any disruption to the strait would have significant implications for global oil supply because the route carries a substantial portion of the world’s crude exports.
Financial markets are already adjusting expectations for central bank policy as the risk of higher inflation increases. Traders have scaled back forecasts for interest rate cuts by the U.S. Federal Reserve this year. Markets are now pricing in roughly 20 basis points of easing compared with about 50 basis points expected only weeks earlier.
Bond markets have also reflected shifting expectations. U.S. Treasury yields climbed sharply in recent sessions with the two-year note yield reaching its highest level in six months before easing slightly to around 3.73 percent.
The yield has increased significantly since the conflict began.
Long-term bond yields have also moved higher as investors reassess inflation risks and the outlook for monetary policy.
Analysts say rising oil prices could pressure corporate profit margins and increase production costs across multiple industries, adding further uncertainty to global financial markets.
Investor attention is now turning toward a series of central bank meetings scheduled for next week. Policymakers from the Federal Reserve, the Bank of Japan, the European Central Bank and the Bank of England are expected to meet to discuss monetary policy, with most analysts anticipating that interest rates will remain unchanged.
In Australia, however, markets broadly expect the central bank to implement a rate increase.
Currency markets also showed modest movements during the session as the euro traded near $1.15035 and remained on track for a weekly decline of nearly 1 percent, while the U.S. dollar index approached a 1 percent weekly gain.
Gold prices rose slightly during Friday’s session, increasing about 0.4 percent to around $5,101 per ounce, although the metal remained on course for a weekly decline.
With geopolitical tensions continuing and energy prices elevated, analysts warn that global financial markets could remain volatile in the near term as investors navigate a rapidly shifting economic and political environment.
