Global financial markets were hit by a broad sell-off yesterday following a fresh escalation of geopolitical tensions in the Middle East, after US President Donald Trump announced the end of the interim agreement with Iran, reigniting concerns over the stability of global energy markets and prompting investors to pare their positions in high-risk assets in favour of safe havens.
The geopolitical developments triggered a sharp rally in oil prices, with Brent crude rising more than 4% during the session and extending its gains for a second consecutive day, amid fears of supply disruptions from the Gulf region, as investors watched for developments in the Strait of Hormuz, one of the world's most critical oil transit chokepoints.
US indices opened sharply lower, with the Dow Jones Industrial Average falling 650 points, or 1.38%, and the S&P 500 dropping 537 points, or 1%. The Nasdaq declined around 0.44%, as technology and semiconductor stocks faced a fresh wave of selling.
US index futures fell even more steeply ahead of the open, clearly reflecting investor anxiety, while the CBOE Volatility Index (VIX) — known as Wall Street's fear gauge — climbed to its highest level in more than a week.
Analysts said the rebound in oil prices posed a new challenge for markets, which had expected inflationary pressures to ease following the earlier Washington-Tehran de-escalation deal, a development that could complicate the Federal Reserve's management of monetary policy in the months ahead.
US energy companies benefited from higher oil prices, with shares of Chevron, ExxonMobil, ConocoPhillips, Occidental Petroleum and Devon Energy posting notable gains, supported by expectations of increased sector revenues should crude prices remain elevated.
Airlines, travel and cruise companies, by contrast, came under heavy pressure, with shares of United Airlines, Delta and Southwest falling alongside cruise operators such as Carnival and Royal Caribbean, on fears of higher fuel costs and a drop in travel demand.
The semiconductor sector also saw a fresh wave of selling, with a US chipmaker ETF declining as profit-taking continued following the sector's substantial gains in recent months driven by the artificial intelligence boom.
The sell-off extended to European markets, where the Stoxx 600 index fell around 1.08%, with automakers and bank shares suffering the steepest losses amid rising energy prices and growing concerns over a slowdown in economic activity.
European airline stocks also fell, led by Air France, Wizz Air and Lufthansa, after the rise in oil prices heightened expectations of higher operating costs.
The technology sector delivered a mixed performance in Europe: shares in Dutch company ASML rose, while other European semiconductor firms declined.
The most notable exception in European markets was Swedish company Bahnhof, whose shares surged around 18% after Telenor announced the purchase of a controlling stake in the company.
In Asia, Japanese equities suffered steep losses, with the Nikkei closing at its lowest level in roughly four weeks, weighed down by a decline in technology stocks following the sharp losses recorded by the Nasdaq overnight.
The Nikkei fell 2.11% to 36,819.05 points, its lowest closing level since 12 June. The index fell for the third consecutive session, while the broader Topix index declined 1.37% to 4,006.43 points.
The Nasdaq, where technology stocks carry significant weight, closed sharply lower the day before yesterday, hit by the performance of Micron Technology and other chipmakers amid growing concerns about the sustainability of Wall Street's AI-driven rally.
The losses followed weaker-than-expected results from Samsung Electronics, which triggered a broad sell-off in semiconductor stocks and led to declines in shares of companies including Tokyo Electron, Advantest and Taiyo Yuden.
In South Korea, the Kospi index officially entered bear market territory after declining more than 20% from its recent highs, as investors exited AI and semiconductor stocks.
Chinese equities bucked the trend, however, after Alibaba's shares jumped around 12% on the Hong Kong Stock Exchange, supported by strong buying of Chinese stocks.
In commodity markets, oil extended its gains as supply disruption fears intensified, while gold rose in its role as a safe haven during periods of tension; the US dollar and Treasury yields, meanwhile, held close to their previous levels.
Analysts believe markets are still betting that the current escalation will not develop into a full-scale confrontation, though they warn that a continuation of tensions or a disruption to oil exports from the region could push crude prices higher, bring inflation back to the fore and weigh negatively on global growth expectations and monetary policy outlooks.
Markets are awaiting the release of the Federal Reserve's meeting minutes in the coming hours, searching for fresh signals on the interest rate path, at a time when geopolitical developments and energy prices have become the most influential factors shaping global market direction in the current period.