Asian shares drop, oil prices surge on Trump threats on Strait of Hormuz blockade

Asian shares declined during open on Monday while oil prices surged as US-Iran tensions escalated after US President Donald Trump ordered a blockade of the Strait of Hormuz, following the collapse of weekend peace talks.

Asia equities declined 0.8% during open while S&P 500 Futures dropped 1.1%.

Brent crude surged 8.6% to $103.16 a barrel.

The dollar, which has been the haven of choice since the Middle East conflict began, strengthened against all its Group-of-10 peers. Treasuries fell and Japan’s 10-year yield rose to 2.49%, the highest since 1997. Gold fell 1.7% to about $4,650 an ounce as higher oil prices fueled expectations interest rates will stay elevated, weighing on non-yielding assets such as bullion.

The US will begin implementing a blockade of all maritime traffic entering and leaving Iranian ports on Monday at 10 a.m. New York time, the US Central Command said, following up on Trump’s announcement. US forces won’t impede freedom of navigation for vessels transiting the Strait of Hormuz to and from non-Iranian ports. Iran said it “won’t allow” the blockade to go ahead.

The escalation came after the US and Iran couldn’t reach an agreement during talks in Pakistan over the weekend, which is likely to disappoint investors who had added to stocks last week after the countries announced a ceasefire. The truce triggered a sharp rally with the S&P 500 Index climbing 3.6% and an MSCI gauge of emerging-market equities rising 7.4%.

Trump said the US will interdict any vessel that has paid a toll to Iran for safe passage through Hormuz and will clear mines in the strait. A blockade would halt the nearly 2 million barrels a day of Iranian oil that’s been passing through the waterway, further squeezing global supply and cutting off a vital lifeline for the Islamic Republic.

Gauging how markets will react to headlines from the Middle East has been a fraught process since the conflict erupted at the end of February. Big swings have been common as the US and Iran postured for negotiating advantage. Still, analysts said the scale of market reaction may be limited if investors take the view that the talks represent a negotiating tactic that will eventually lead to a solution for the seven-week conflict.

Adding to the potential for turbulence, first-quarter earnings season is about to start in the US, with analysts projecting S&P 500 profits will rise about 12% from a year earlier, the weakest since the second quarter of 2025. Goldman Sachs Group Inc. kicks off the US reporting season on Monday.

Investors are eager to hear what corporate leaders have to say about the mounting risks, which include hotter inflation as a result of the surge in oil, and the threat that consumers start to pull back. Data on Friday showed US consumer prices jumped the most since 2022, although the core measure was relatively tame, while consumer sentiment slumped.

Against that backdrop, higher bond yields are starting to look appealing to some investors. Two-year Treasury yields, most sensitive to Federal Reserve policy expectations, are around 3.85%, up nearly half a percentage point since the war began.

Bond traders are likely to “weigh safe-haven demand against the inflation read,” said Kyle Rodda, a senior analyst at Capital.com. “If oil pushes higher on Hormuz concerns, inflation expectations reprice quickly and put a floor under yields. That limits how far the duration rally can run.”

Elsewhere, Hungary’s currency gained versus the euro and the dollar after Prime Minister Viktor Orban was ousted in a landslide victory for the pro-European opposition in Sunday’s election. The result is seen as the most bullish outcome, as it would help unblock access to billions of euros in European Union financing.

While the forint and other Hungarian assets are likely to benefit, the scope for the rally “could be constrained by the failure of the US and Iran to reach a peace agreement,” said Piotr Matys, a currency strategist at In Touch Capital Markets.

With inputs from Bloomberg