Asian stock markets fell sharply Monday as escalating tensions between the United States and Iran drove oil prices higher and dampened investor sentiment. Japan's Nikkei 225 dropped 3.5% to 51,511.75, while South Korea's Kospi dove 6.5% to 5,404.77, leading declines across the region.

The selloff followed President Donald Trump's weekend ultimatum demanding Iran fully open the Strait of Hormuz within 48 hours or face strikes on its power plants. Iran responded by threatening retaliatory attacks on U.S. and Israeli energy and infrastructure assets in the region if such strikes occur.

Other major Asian indices also declined, with Taiwan's Taiex falling 2.5%, Hong Kong's Hang Seng dropping 4.0%, and China's Shanghai Composite declining 3.7%. Australia's S&P/ASX 200 fell 0.7%, showing relatively smaller losses.

Energy markets reflected the heightened tensions, with benchmark U.S. crude rising $1.76 to $99.99 per barrel and Brent crude gaining $1.15 to $113.34. Brent prices have fluctuated dramatically since the conflict began, ranging from around $70 per barrel before the war to as high as $119.50.

The escalating situation has reduced expectations for Federal Reserve interest rate cuts this year. Before the conflict, traders had anticipated at least two rate reductions in 2026. Higher oil prices and sustained inflation concerns have led central banks in Europe, Japan, and the United Kingdom to maintain current interest rate levels.

U.S. markets also showed weakness Friday, with the S&P 500 falling 1.5% to close its fourth consecutive losing week. The index dropped 100.01 points to 6,506.48, while the Dow Jones fell 443.96 points to 45,577.47. Bond yields rose in response to the tensions, with the 10-year Treasury yield jumping to 4.38% from 4.25% the previous day.