Asian stocks declined, with risk assets generally weakening due to the protracted conflict in the Middle East and renewed attacks by Iran. Oil prices opened slightly lower.

Japanese and Australian stocks fell, dragging down the MSCI Asia Pacific index by 0.5%. The index has fallen by about 7% since the start of the war. During US trading hours, US Treasury prices fell and the dollar strengthened, poised for its best weekly performance since 2024. US stock indices also fell on Thursday but have since recovered from their intraday lows.

Market focus was primarily on oil prices, with West Texas Intermediate crude falling as much as 2.5% on Friday to nearly $79 a barrel. This followed US Interior Secretary Doug Burgum’s statement that the Trump administration was weighing a range of options to address soaring oil and gasoline prices during the Iran-Iran conflict. Despite this, oil prices are still on track for their biggest weekly gain since 2022.

The ongoing US-Israeli military action against Iran has shaken global energy markets, with US crude oil prices surging to multi-year highs due to concerns that disruptions to traffic in the Strait of Hormuz could limit supply. The conflict has already disrupted energy flows for major buyers, with China, the largest importer, taking measures to conserve fuel. If the conflict continues, it will exacerbate inflation risks and market volatility.

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