The escalating military conflict between the United States, Israel, and Iran has sent shockwaves through global financial markets, with Asian stock exchanges recording their steepest losses in years on Wednesday. South Korea’s KOSPI index led the carnage, plunging approximately 12% in a single session – its worst performance since the 2008 global financial crisis – after already dropping 7.2% the previous day. The rout triggered a 20-minute trading halt early in the session, and of more than 800 stocks on the benchmark, only 10 finished in the green.
The KOSPI had been the world’s best-performing major index this year, gaining more than 40% in the first two months of 2026 on the back of surging demand for AI-related semiconductor stocks. That rally has now been brutally reversed, with Samsung Electronics, SK Hynix, and Hyundai Motor all tumbling sharply as investors fled risk assets. The country’s KOSPI Volatility Index spiked to 60.72 intraday, the highest since 2020.
Across the region, Japan’s Nikkei 225 shed 3.9% to fall below 54,100, while Hong Kong’s Hang Seng dropped 2.8% and Taiwan’s Taiex lost 3.4%. Australia’s S&P/ASX 200 declined 2%, and Jakarta’s index sank 3.7%. Mainland China’s Shanghai Composite was down 1.3%. On Wall Street the previous session, the S&P 500 finished with a 0.9% loss after dropping as much as 2.5% during the day, while the Dow Jones shed 0.8% and the Nasdaq fell 1%.
At the center of the market turmoil is the effective closure of the Strait of Hormuz, one of the world’s most critical energy chokepoints. Following the joint U.S.-Israeli strikes on Iran that began on February 28 – which included the assassination of Supreme Leader Ali Khamenei – Iran’s Islamic Revolutionary Guard Corps formally declared the strait closed on March 2, threatening to set ablaze any vessel that attempted passage. While the closure is not legally binding, the practical effect has been devastating: ship-tracking data shows traffic has dropped to near zero, with over 150 tankers anchoring outside the strait to avoid risk.
The strait normally handles roughly 20% of the world’s daily oil supply and significant volumes of liquefied natural gas. Major container shipping companies including Maersk, Hapag-Lloyd, MSC, and CMA CGM have all suspended transits through the waterway and rerouted vessels around Africa’s Cape of Good Hope, adding weeks to transit times. Marine insurance providers have scrapped war risk cover for vessels in the region, with protection and indemnity coverage set to be formally withdrawn from March 5. The benchmark freight rate for Very Large Crude Carriers hit an all-time high of $423,736 per day on Monday, up more than 94% from Friday’s close.
Oil prices have surged, with Brent crude climbing nearly 10% since the conflict broke out, and analysts warning that prices could cross $100 per barrel if disruptions persist. Qatar, one of the world’s largest LNG providers, halted production after Iranian drones struck its facilities at Ras Laffan Industrial City. Natural gas prices have also spiked sharply in Europe.
The implications extend well beyond energy markets. South Korea, Japan, and Taiwan depend heavily on Middle Eastern oil and gas imports that transit the strait, making them especially vulnerable. Analysts at Nomura flagged South Korea, Thailand, India, and the Philippines as the most exposed to higher oil prices due to their high import dependence. Higher inflation driven by energy costs could also constrain the U.S. Federal Reserve from further rate cuts – a prospect that had been buoying markets earlier in the year.
Defense stocks, however, have surged against the tide, with South Korean defense names like Lignex1, Victek, and Firstec rising 20-30% as the conflict fuels global demand for military hardware.
