US Airstrikes on Iran Trigger Oil Surge and Market Slump

Asian stock markets slumped Wednesday following a series of U.S. airstrikes on Iran conducted on Tuesday. The military action caused Brent crude to top $96 per barrel and drove global bond yields to their highest levels since 2008. The MSCI Asia-Pacific index fell 0.8%, while South Korea's KOSPI and Japan's Nikkei 225 dropped 3% and 2.2% respectively.

Donald Trump characterized the strikes as retaliation for an Iranian attack on a military base in Jordan and attempts by Iran to mine the Strait of Hormuz. The geopolitical tension has raised fears of oil flow disruptions and resurgent inflation, leading to a stronger U.S. dollar and rising Treasury yields.

Market volatility has increased investor expectations that the Federal Reserve System will hike interest rates at its September 16 meeting. Traders have increased the implied probability of a rate hike to 67% following a speech by Federal Reserve Chair Kevin Warsh at Jackson Hole.