By Reshma Kapadia

Stocks in South Korea, Japan and Taiwan tumbled further Monday as the Iran conflict intensified concerns for energy importers home to energy-intensive industries -- with the losses more dramatic than those in the U.S. But that could be a harbinger of what's to come for U.S. markets if the conflict continues.

South Korea's benchmark KOSPI index fell another 6.5% overnight, adding to last week's nearly 20% decline. Japan's Nikkei 225 index fell 5% overnight and Taiwan's TAIEX index lost 4.5% -- marking reversals in some of last year's best-performing markets. The S&P 500 was down just about half a percentage point Monday and roughly 2% since the conflict began.

U.S. investors have often approached geopolitical shocks as an opportunity to buy, but geopolitical analyst Louis-Gave Vince cautioned clients in a webinar Monday that the current backdrop is different -- and the risks are not just related to higher oil prices but to supply chains and investor expectations more broadly.

While Iran has been hit hard by the U.S. and Israel through air strikes, Gave notes that Iran has been able to inflict significant damage using drones, including an attack on Bahrain's largest refinery overnight, while also disrupting an array of regional supply chains.

The Middle East produces about a third of the world's helium, which is needed to make semiconductor chips. It also exports natural gas to Europe and produces urea fertilizer, disruptions of which could ripple through agricultural output globally. Meanwhile, attacks on data centers in the Middle East raise questions about the sizable deals the Trump administration has struck in recent months to tap cheap electricity in the region to build AI-focused data centers.

These ripples raise questions about many of the factors that have underpinned the U.S. bull market.

"It makes sense for Asian markets -- and all markets -- to readjust because we are now in a level of uncertainty I can't remember seeing -- and that is greater than during Covid," Gave said. "This to me feels scarier because the supply chain dislocations could be much bigger."

Korea, Taiwan and Japan are much more exposed to global trade than a consumer-led economy like the U.S., which is one reason declines have been steeper abroad. But while Asian countries may be more vulnerable to slowing growth, the U.S. and Europe could be facing a sharper inflation shock, especially if companies respond by stocking up on fertilizer and move toward a "just in case" versus a "just in time" supply chain, as seen during Covid. Companies may also opt to build data centers closer to home, even if that proves a pricier proposition.

Policymakers in Asia have more policy room to deal with slower growth through stimulus than the U.S. or Europe do to tackle inflation, Gave says. That imbalance could pose a risk for U.S. markets ahead.

The initial read was that the Iran conflict was a blow to China, hitting another of its allies and oil suppliers just weeks after the U.S. seized another ally, Venezuela's Nicolás Maduro. But Gave thinks China is much further down the list of countries likely to be hurt by the conflict, in part because it has been preparing for these types of geopolitical risks for years and working to become more self-reliant, even at the expense of slower economic growth.

For example, China has built 1.3 billion barrels of oil in reserve. About 18% of its energy consumption comes from oil, 19% from natural gas. That compares with about 38% of U.S. energy consumption coming from oil and 34% from natural gas, according to Arthur Kroeber, head of research at Gavekal, speaking on the webinar.

Much of China's transport has become electrified and the oil and gas that it does use is mainly for industrial uses, such as petrochemicals. If supplies tighten, analysts say China could turn more heavily to coal. Even though it is an oil importer, in this way Kroeber says China may be more insulated than the U.S. from a spike in oil prices, especially given its stockpiles.

If the conflict continues and China finds its back to the wall, Gave says they could tell Russia to stop selling to others and steer more of its oil to Beijing. That's not an option for Korea, Taiwan or Japan -- creating pressures for their supply chains. Potential beneficiaries of this crunch could be coal companies in South Africa, Australia, and Indonesia that Asian economies may turn to in a pinch.

China is also grappling with deflation, not inflationary pressures like in the U.S, and its policymakers have ample room to ramp up fiscal stimulus, Gave says. That has offered its market a buffer, with the MSCI China exchange-traded fund up 0.6% to $57.07 Monday.

Write to Reshma Kapadia at reshma.kapadia@barrons.com

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March 09, 2026 14:25 ET (18:25 GMT)

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