Oil prices extend rally as US strikes on Iran revive geopolitical fears

Oil prices jumped more than three percent on Wednesday as the Middle East crisis burst back into the spotlight with US and Iranian forces exchanging strikes after attacks on ships in the Strait of Hormuz, fuelling fresh supply fears.

The sudden flare-up has stoked concerns about peace talks between the foes as they look to end their conflict and fully reopen the crucial waterway.

It added to the largely dour mood in Asia, where Seoul suffered another tech rout amid questions over stretched valuations and when companies will start realising profits from their eye-watering AI investments.

US and Iranian forces reported hitting dozens of targets, putting more strain on an interim deal to end the Middle East war, while Washington revoked a temporary sanctions waiver for Iranian oil.

Washington revoked the waiver and launched the new attacks on military sites in what the US military called retaliation for Iran’s strikes on three commercial ships in the Strait of Hormuz.

Iranian state media reported a wave of explosions around the strait, while the country’s Revolutionary Guards said they had hit dozens of US military facilities in Bahrain and Kuwait.

The three vessels were struck close to Oman, which had proposed a temporary transit corridor hugging its coastline — an initiative opposed by Tehran as it seeks to impose fees on ships using the waterway.

Iran’s foreign ministry accused the United States of repeatedly violating a memorandum of understanding agreed between the two sides.

Both main crude contracts jumped more than two percent on Wednesday — having climbed a similar amount on Tuesday — to two-week highs.

READ MORE: Oil jumps as US revokes sanctions waiver on Iranian oil

Andreas Krieg, a security expert at King’s College London, said Iran was determined to stick to its demand of charging fees to use the strait, which Washington has said was not acceptable.

“We are now in a sensitive period where potential alternatives to an Iranian toll or fee system are being explored,” he told AFP.

“Iran is sending a clear signal that no alternative will be accepted.”

Poster child Seoul sinks

Equities also suffered, with the fresh US-Iran tensions coming on top of a retreat from the tech sector that has powered markets to multiple record highs over the past two years.

Seoul’s Kospi — which has been Asia’s poster child for the rally — sank more than five percent and has lost more than 20 percent since hitting a record high last month.

Samsung again took a hit following a rout Tuesday that came despite forecasting its operating profit had rocketed more than 1,800 percent in the second quarter on the back of strong AI chip demand. The firm and rival SK hynix both sank around six percent.

There were also losses in Tokyo, Shanghai, Sydney, Singapore, Wellington, Mumbai, Bangkok and Jakarta.

London, Paris and Frankfurt dropped in the morning.

However, Hong Kong rose three percent as traders chased beaten-down Chinese tech stocks, with Alibaba piling on more than 12 percent, and JD.com and Tencent each up 3.8 percent.

Singapore, Taipei and Manila also advanced.

“After AI and tech sentiment had dominated market moves over the last couple of weeks, investors are now forced to move back to focusing on geopolitical tensions,” AT Global Markets’ Nick Twidale said.

“And this should dominate market sentiment, especially if we see a further escalation in the coming sessions.”

The dollar held gains against its peers as the prospect of another hit to supplies from the Middle East fuelled concerns that inflation could remain elevated for longer than feared, putting pressure on the Federal Reserve to hike interest rates.