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Oil prices rose on Monday while the dollar gained strength following the U.S. airstrikes on Iran's nuclear sites over the weekend.
Most Asian markets declined, though Chinese stocks saw an increase as traders anticipated Iran's possible responses.
One potential course of action could involve creating economic disruption by attempting to block the crucial Strait of Hormuz, through which one-fifth of the world's oil supply passes.
Iran ranks as the ninth-largest oil producer globally, pumping around 3.3 million barrels daily, exporting nearly half that amount while using the rest domestically.
As trading commenced on Monday, both Brent crude and the main U.S. crude contract, WTI, surged more than four percent, marking their highest prices since January.
However, they later reduced these gains, with both rising approximately 1.1 percent by mid-afternoon in Asia. According to Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, satellite imagery suggests that oil is still flowing through the Strait, which may clarify the market's relatively subdued response.
Many analysts are hopeful that Iran will refrain from escalating retaliation, as such actions could provoke attacks on its own facilities and perpetuate a broader conflict detrimental to China, its largest oil importer.
Nonetheless, Ozkardeskaya noted that if the situation worsens, the price of U.S. crude might spike above $100 per barrel; WTI was around $75 on Monday.
Economists at MUFG warned that an oil price shock would severely impact many Asian economies reliant on energy imports, as Tokyo dipped by 0.1 percent, Seoul by 0.2 percent, Sydney by 0.4 percent, and Jakarta by 1.7 percent. Conversely, Hong Kong saw a rise of 0.6 percent, while Shanghai increased by 0.7 percent. Early trading in London, Frankfurt, and Paris reflected declines.
Although the dollar appreciated against other currencies, some analysts doubted its staying power.
Sebastian Boyd, a strategist for Bloomberg's markets live blog, suggested that if the increase turns out to be a mere knee-jerk reaction to short-term U.S. involvement in the Middle East, the dollar could resume its downward trend.
Chris Weston from Pepperstone indicated that Iran could impose economic harm globally without resorting to the extreme measure of closing the Strait of Hormuz.
He mentioned that by instilling enough concern about their ability to disrupt this critical logistical route, maritime costs could rise significantly, affecting crude and gas supplies.
Simultaneously, with President Trump's main focus on the Middle East, market anxieties over trade negotiations could rise. Key figures around 0700 GMT included Brent North Sea Crude up 1.1 percent at $78.08 per barrel and West Texas Intermediate up 1.1 percent at $74.89 per barrel.
Notable index movements included Tokyo's Nikkei 225 down 0.1 percent at 38,354.09, Hong Kong's Hang Seng up 0.6 percent at 23,661.88, and Shanghai's Composite up 0.7 percent at 3,381.58. In the broader markets, London’s FTSE 100 was down 0.3 percent at 8,743.99, while the euro/dollar was down at $1.1512 from $1.1516 on Friday, the pound/dollar was up to $1.3445 from $1.3444, the dollar/yen increased to 147.14 yen from 146.13 yen, and the euro/pound was down at 85.62 pence from 85.66 pence. In New York, the Dow was up 0.1 percent at 42,206.82 at closing.
