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Key indexes in Japan, South Korea and Hong Kong tumble as Iran threatens attacks on energy infrastructure across region.

Stock markets in the Asia Pacific have fallen sharply amid US President Donald Trump’s ultimatum warning Iran to reopen the Strait of Hormuz or face the annihilation of its energy infrastructure.

Japan’s benchmark Nikkei 225 and South Korea’s KOSPI plunged 4 percent and 4.5 percent, respectively, in early trading on Monday.

In Hong Kong, the Hang Seng Index tumbled about 2 percent.

Australia’s ASX 200 dropped about 1.6 percent, while the NZX 50 in New Zealand dipped about 1.3 percent.

Futures on Wall Street, which are traded outside of regular market hours, saw moderate losses, with those tied to the S&P500 and the Nasdaq Composite down about 0.5 percent.

Oil prices remained volatile amid fears of further disruption to global energy supplies.

Futures for Brent crude, the international benchmark, rose more than 1.5 percent to top $114 a barrel, before easing to about $112 as of 02:00 GMT.

Trump on Saturday threatened to “obliterate” Iran’s power plants within 48 hours if Tehran does not end its effective blockade of the strait, through which about one-fifth of global oil and natural gas exports usually transit.

Tehran has pledged to completely close the waterway, which is still being transited by a small number of Chinese, Indian and Pakistani-flagged vessels, and launch retaliatory attacks on energy and water infrastructure across the region if Trump follows through on his threat.

Based on the timing of Trump’s warning on Truth Social, the deadline for his ultimatum is set to expire at 23:44 GMT on Monday.

Trump’s threat has added to fears of a cascading global energy crisis as the US and Israel’s war on Iran approaches the one-month mark with no clear end in sight.

Oil prices have surged more than 50 percent since the start of the war, which began with US-Israeli strikes on February 28.

Analysts have warned that energy prices are likely to rise significantly further if the strait remains effectively closed, with some observers predicting oil to hit $150 or even $200 a barrel.

Trump on Sunday held a phone call with UK Prime Minister Keir Starmer to discuss the situation in the Middle East, including the effective closure of the strait.

The two leaders agreed that unblocking the strait is “essential to ensure stability in the global energy market”, Starmer’s office said in a statement.

Trump has provided conflicting messages about the goals of the war and how long it might last.

Hours before issuing his ultimatum on Saturday, Trump said that his administration was “very close to meeting our objectives as we consider winding down” military operations against Iran.

Israeli military spokesperson Lieutenant Colonel Nadav Shoshani last week told reporters that officials had detailed plans for at least three more weeks of war.

U.S. trade policy uncertainty has sent shockwaves through global markets, as President Donald Trump moved to impose a 15% tariff following the Supreme Court of the United States ruling invalidating his emergency trade levies. Investors reacted quickly, rotating out of risk assets and the dollar, while seeking shelter in gold, silver, and safe-haven currencies. The turbulence highlights the fragility of global investor confidence when policy reversals collide with high-stakes geopolitical and economic risks.

Wall Street and Currency Volatility

U.S. stock futures fell sharply, with S&P 500 futures down 0.5% and Nasdaq futures slipping 0.6%. The dollar weakened across major pairs, losing 0.21% versus the yen and 0.34% against the Swiss franc, while the euro gained 0.23%. European equities also reflected caution: the STOXX 600 fell 0.19%, Germany’s DAX slid 0.36%, and Britain’s FTSE 100 edged down 0.1%.

Asian markets, however, were mixed. The MSCI Asia index excluding Japan rose 0.83%, while Hong Kong’s Hang Seng surged 2.53% on expectations of lower tariffs for China. Japan’s Nikkei futures fell 0.4% ahead of a holiday, highlighting regional divergence driven by perceived winners and losers in U.S. tariff policy.

Safe-Haven Assets Rally

Amid the uncertainty, investors sought protection in gold and silver, which climbed 0.6% and 2% respectively. Safe-haven currencies, including the Japanese yen and Swiss franc, appreciated as risk-off sentiment grew. Government bonds saw slight gains, with the U.S. 10-year Treasury yield dipping to 4.077%, reflecting flight-to-quality buying. Brent crude prices fell 1.1% to $70.97 a barrel, reversing gains from earlier geopolitical risk sentiment linked to U.S.-Iran tensions.

Tariff Confusion and Its Economic Implications

Trump’s latest tariffs add layers of ambiguity. While the Supreme Court struck down his emergency powers, the new 15% levy relies on Section 122 of the 1974 Trade Act, an untested statute. Questions remain over timing, exclusions, and applicability by country. Some nations, including the UK and Australia, had lower tariffs under prior rules, while many Asian exporters faced higher duties. The Yale Budget Lab estimates the average effective tariff rate at 13.7% following the announcement, down from 16% pre-ruling, with the 15% rate potentially dropping to 9.1% after 150 days.

“This circular process of tariff announcements, legal challenges, and revisions is creating profound uncertainty for markets,” said Rodrigo Catril, senior FX strategist at NAB.

Market Sentiment and Investor Behavior

The episode reflects broader structural concerns about U.S. trade policy’s unpredictability. Investors are no longer just reacting to tariffs themselves, but to the instability and volatility of policy enforcement. The uncertainty affects supply chains, corporate earnings forecasts, and capital allocation decisions. Nvidia’s upcoming earnings, for example, are being closely watched, given the company’s 8% weighting in the S&P 500, demonstrating how trade policy shocks can amplify market sensitivity to specific corporate results.

Analytical Outlook

Trump’s oscillating trade policy highlights a critical tension between political objectives and market stability. While tariffs are framed as instruments to advance domestic economic priorities, the resulting unpredictability imposes systemic costs: currency swings, equity market volatility, and flight to safe assets. The mixed regional responses Asian equities partially rallying, European markets cautious underscore how interconnected global trade and finance are, and how unevenly shocks are absorbed.

In essence, this episode illustrates a modern economic paradox: protective trade measures intended to strengthen domestic interests can, in practice, destabilize markets worldwide. Investors now must hedge not only against tariffs themselves but also against the policy volatility that accompanies them a scenario likely to persist as long as U.S. trade decisions are made unilaterally and unpredictably.

Trump’s approach has transformed trade from a predictable framework into a high-stakes, reactive arena, forcing global markets to continuously recalibrate. The lesson is clear: in today’s interconnected financial system, the cost of policy uncertainty often outweighs the intended protectionist benefit.

With information from Reuters.