Nikkei plunges nearly 5 percent as Middle East tensions rattle Asia

Monday 23 March 2026 - 13:20

By: Dakir Madiha

Nikkei plunges nearly 5 percent as Middle East tensions rattle Asia

Japan’s Nikkei 225 index fell sharply by nearly 5 percent on Monday, losing more than 2,600 points as escalating conflict in the Middle East triggered a broad selloff across Asian markets and intensified concerns over a prolonged energy-driven inflation shock.

South Korea’s Kospi dropped more than 6 percent, prompting a circuit breaker on the Korea Exchange after futures declined beyond the 5 percent threshold. In Australia, the S&P/ASX 200 index fell 2.4 percent, reflecting widespread investor risk aversion across the region.

The market reaction followed reports of explosions in Tehran early on March 23 and a new wave of Iranian strikes targeting Israeli military sites and a US air base in Saudi Arabia. The escalation came days after US President Donald Trump issued an ultimatum demanding that Iran reopen the Strait of Hormuz within 48 hours or face strikes on its energy infrastructure. Iran responded by warning it would fully close the strait if attacked.

Japan is among the most exposed economies to the crisis. The country relies on the Middle East for about 95 percent of its oil imports, with roughly 90 percent of those shipments passing through the Strait of Hormuz. The disruption has effectively halted flows from major Gulf exporters, raising concerns about supply security.

Prime Minister Sanae Takaichi has ordered the release of about 80 million barrels from Japan’s strategic reserves and said the country holds around 254 days of oil supply. However, analysts warn that reserves cannot offset a prolonged disruption, particularly if maritime flows remain restricted.

The Nikkei has now fallen about 15 percent from its intraday peak in late February, when investor optimism over fiscal policy and interest rate expectations had pushed the index to record highs. Since the outbreak of the conflict, rising energy costs have weighed heavily on corporate outlooks.

Analysts say the surge in oil prices is increasing production costs and reducing consumer purchasing power, forcing companies to revise earnings forecasts downward. The impact is particularly severe in energy-importing economies such as Japan and South Korea.

Market sentiment has also been affected by global monetary policy uncertainty. The US Federal Reserve’s decision to hold interest rates steady has been interpreted by investors as a signal that inflation risks remain elevated, with expectations shifting toward potential rate increases.

With limited prospects for a rapid reopening of the Strait of Hormuz, investors are bracing for continued volatility across equity and currency markets in Asia.