On Monday, stock markets across the Asia-Pacific region fell sharply as escalating threats of hostilities between the United States and Iran heightened investor concerns over rising tensions in the Middle East. Japanese and South Korean equities once again became the primary targets of selling pressure. South Korea’s KOSPI index opened down 3.5%, with losses widening to over 6% at one point. As of the latest update, the index was down 4.71% at 5,457.13 points. The Korea Exchange triggered a circuit breaker for the KOSPI index after KOSPI 200 futures fell 5%, suspending program trading for five minutes. Among heavyweight stocks, SK Hynix saw its share price drop more than 5%, while Samsung Electronics and Hyundai Motor both declined nearly 5%. Japan’s Nikkei 225 index opened 1.68% lower, falling more than 2,600 points during the session. As of the latest update, it was down 3.35% at 51,582.23 points. Futures for the Tokyo Stock Price Index (TOPIX) Growth Market 250 also triggered a circuit breaker, with trading resuming at 9:40 a.m. local time. Other regional markets also experienced significant declines. As of the latest update, Australia’s benchmark S&P/ASX 200 was down nearly 1%, while Hong Kong’s Hang Seng Index fell more than 3%.

The escalation in U.S.-Iran tensions began when U.S. President Donald Trump issued a statement on Saturday threatening to "destroy" Iran’s power infrastructure if the country did not fully reopen the Strait of Hormuz within 48 hours. This ultimatum drew a strong response from Iran. According to reports, Iran’s Armed Forces Central Command warned early on March 22 that if the country’s fuel and energy infrastructure were attacked, all energy facilities, IT systems, and desalination plants belonging to the U.S. and its allies in the region would become legitimate targets. Additionally, the Speaker of Iran’s Parliament stated that if Iran’s power plants, energy, or oil facilities were targeted, similar infrastructure across the region would be considered legitimate targets, leading to irreversible destruction and long-term increases in oil prices.

Why have Japanese and South Korean stock markets been hit the hardest? In the current U.S.-Iran conflict, these two markets have emerged as the biggest casualties. Whenever there are signs of escalating tensions between the U.S. and Iran, selling pressure in Japanese and South Korean equities intensifies the most. Analysts point to a key reason: both Japan and South Korea are major importers of oil and natural gas, and their energy imports heavily rely on the Strait of Hormuz. Rising tensions in the Middle East drive up oil prices, significantly increasing energy costs for both countries and fueling concerns over imported inflation. Data shows that over 90% of Japan’s oil imports come from the Middle East, while South Korea sources about 70% of its crude oil from the region. According to Goldman Sachs estimates, a 60-day disruption in oil shipments through the Strait of Hormuz could lead to a temporary contraction in Japan’s economy—a risk that has drawn attention from the Bank of Japan. Citigroup recently projected that if oil prices remain elevated due to geopolitical tensions in the Middle East, South Korea’s GDP growth in 2026 could be reduced by nearly 0.5 percentage points.

Another important factor behind the sharp reaction in Japanese and South Korean markets is their high concentration of energy- and supply chain-sensitive large-cap stocks. Analysts note that the impact on these markets stems from both short-term energy disruptions and structural characteristics. For instance, both markets have a high proportion of international investors. When global geopolitical risks rise, foreign investors tend to reduce their exposure to these markets. Additionally, Japanese and South Korean stock indices are heavily weighted in cyclical sectors such as automobiles, machinery, and chemicals in Japan, and semiconductors, shipbuilding, and petrochemicals in South Korea. These industries are highly sensitive to energy prices and global trade dynamics.

Since the outbreak of U.S.-Iran tensions, both countries have taken measures to mitigate the impact of potential oil supply disruptions on their markets and economies. Japan has released a record amount of oil from its reserves, while South Korea reintroduced a "petroleum price cap system" after a 30-year hiatus. Recent reports indicate that Japan will use approximately 800 billion yen from its budget reserves to curb gasoline prices. On March 22, South Korea’s Finance Minister urged proactive policy measures during an interagency meeting on the Middle East crisis, emphasizing the need to prepare for a prolonged conflict. Additionally, a spokesperson for South Korea’s ruling party announced that the government plans to draft a supplementary budget of around 25 trillion won.