Asian Markets Slide as West Asia Energy Shock Worsens

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By Nandinee Keluskar

Nandinee Keluskar is an independent financial journalist.

September 11, 2026 at 2:15 AM IST

Global Mood: Risk-off
Drivers: US-Iran tensions, Brent crude above $108 US PPI accelerating

Asian markets turned sharply risk-off on Friday, with equities sliding as surging crude prices and escalating West Asia tensions intensified inflation and growth concerns. Japan’s Nikkei 225 fell 3.05% and South Korea’s Kospi declined 2.35%, while Australia’s ASX 200 also opened lower. SGX Nifty futures were down 102 points, or 0.43%, at 23,358, signalling a weaker opening for Indian equities.

Brent crude futures settled 5.9% higher at $107.63 a barrel, while WTI jumped 6.7% to $102.48, as risks to energy flows through the Strait of Hormuz and Bab el-Mandeb deepened. Iran-linked attacks on shipping have raised concerns over a broader physical energy and freight shock, while diesel prices add to inflation pressures. Higher oil could delay monetary easing and weigh on global growth, with rising Treasury yields adding to equity pressure. Renewed Russia-Ukraine strikes and widening regional tensions further reinforced the risk-off mood.

THE BIG STORY
The West Asia energy shock deepened Thursday as Iran-aligned Houthis seized Yemen’s Red Sea port of Mocha and advanced towards strategic islands near the Bab el-Mandeb Strait, threatening a second major corridor for global energy flows after the Strait of Hormuz was effectively closed. The move comes amid the largest wave of US-Iran attacks on Gulf shipping since the war began, with Hormuz traffic falling to just seven vessels on Wednesday. Brent surged more than 4% above $105 a barrel on concerns over further supply disruption, while the average US diesel price crossed $6 a gallon for the first time. With Saudi Arabia increasingly reliant on Red Sea routes to move oil after the disruption at Hormuz, greater Houthi control of the Bab el-Mandeb could constrain an alternative export route and amplify the physical supply shock. The risk is no longer confined to crude production or Hormuz shipping, but is spreading across multiple energy corridors, refining and freight costs.

The escalation also raises the prospect of a broader regional conflict just as Washington seeks a path out of the war. Saudi Arabia has intensified strikes against the Houthis, while Pakistan has warned Iran that further attacks on Saudi territory could activate its defence arrangement with Riyadh and Turkey, potentially drawing more regional powers into the conflict. Israel's destruction of a Hezbollah underground complex in southern Lebanon adds another front, with the stalled US-brokered framework for Israeli withdrawal and Hezbollah disarmament offering little immediate relief. President Donald Trump's expectation that the Iran war will end after the November midterm elections therefore faces growing risks from developments on the ground, particularly as the US blockade and Iranian retaliation continue. Meanwhile, Russian and Ukrainian drone attacks remain elevated, with strikes killing civilians in both countries, reinforcing a broader backdrop of geopolitical uncertainty that is increasingly feeding into oil, fuel and inflation risks.

Data Spotlight
US producer prices rose 0.4% month-on-month in August, the largest increase in three months, as goods prices jumped 1.1%, led by a 24.1% surge in diesel fuel. Year-on-year PPI accelerated to 5.4% from 4.8%, slightly above forecasts of 5.3%, while core PPI rose 0.2% on the month and 4.6% annually, pointing to broadening upstream price pressures.

The ECB raised its deposit rate by 25 basis points to 2.5% at its September meeting, a second hike since the Iran conflict began, citing persistent inflation well above its 2% target. Inflation forecasts were revised higher for 2027 and 2028, while growth projections were upgraded to 0.9% for 2026 and 1.4% for 2027. President Lagarde reiterated a meeting-by-meeting approach, flagging downside growth risks and upside inflation risks.

US existing home sales fell 2.0% month-on-month in August to a seasonally adjusted annual rate of 3.98 million, a third consecutive monthly decline, with the Northeast and Midwest leading the drop. Inventory rose 3.2% to 1.62 million units while the median price edged up 1.6% year-on-year to $429,100, as rising mortgage rates continued to weigh on buyer activity.

Takeaway: Surging diesel-led producer prices and a second ECB rate hike underscore that the West Asia conflict continues to drive inflation higher on both sides of the Atlantic. US housing market deterioration, with existing home sales hitting a multi-month low, reinforces the mounting affordability toll of elevated borrowing costs.

WHAT HAPPENED OVERNIGHT

US stocks fall as surging oil, rising yields, and August PPI lift September Fed hike odds to 70%

The S&P 500 lost 0.58%, Nasdaq dropped 0.65%, and the Dow fell 0.60%, extending a four-session decline of 2%, the deepest since June, with the S&P 500 now 3% below its August 13 record.
August PPI rose in line with expectations, driven by energy cost rebounds, with Friday's CPI data the final key input ahead of next week's Fed decision.
The S&P 500 now trades at 19 times expected earnings, its cheapest since April 2025's Liberation Day tariff shock, as the strong earnings outlook partially offsets the rate pressure on valuations.

US Treasury yields surge to 4.9% as energy-driven PPI and oil price spike cement September hike case

The 10-year yield climbed to 4.9% after August PPI rose 0.4% month-on-month, with energy price surges combining with signs of broader cost pass-through across sectors.
Fresh US-Iran strikes prolonged the Persian Gulf tanker blockade, driving oil and product prices higher and adding to the inflationary backdrop just ahead of next week's FOMC meeting.
Yields rose despite the Treasury tripling its note and bond buyback operation, highlighting the structural forces overwhelming intervention efforts.
Record AI company debt issuance of over $1.5 trillion and repeated Japanese yen defense Treasury selling continued to add structural upward pressure on the long end of the curve.

US Dollar rises to 99 as oil surge and PPI data push September Fed hike odds to 70%

The dollar index climbed to 99 as escalating US-Iran hostilities drove oil prices higher, with September hike odds jumping to 70% from 60% the prior day and an October hike now fully priced in.
August PPI accelerated to 0.4% month-on-month on energy price surges, though core PPI rose just 0.2%, below both the prior month's 0.3% and forecasts, confirming energy as the primary inflation driver.
Friday's CPI report is the final key input before next week's Fed decision, with markets watching closely for signs of energy price pass-through into broader consumer prices.
The ECB raised rates by 25bps as expected and lifted its inflation forecasts, adding to the global tightening backdrop.

Oil surges over 6% with both Brent and WTI topping $100 in biggest shipping attack spike since the war began

Brent settled at $107.63/bbl, up 6.34%, and WTI at $102.48, up 6.69%, both at their highest since May 19 and recording their steepest single-day gains in nearly two months.
Iran attacked 10 ships near Hormuz on Wednesday after the US sank five Iranian tankers, with the IRGC vowing to escalate further, while Hormuz traffic fell to single digits.
Houthis seized Yemen's port of Mocha, posing a fresh threat to Red Sea traffic and expanding supply disruption risk beyond Hormuz to Saudi energy infrastructure and regional export routes.
Trump warned the US may hit Iran's Pickaxe Mountain near the damaged Natanz facility and said the war would likely extend beyond the November midterm elections, dimming near-term peace prospects.
S&P Global said crude markets are settling into a "prolonged new normal where disruption risk is persistent, not episodic," as Brent crosses $100 for the first time since July.
China stepped up crude purchases after months of subdued demand, with ING warning that continued Chinese buying could amplify supply disruption impacts and drive prices higher.
OPEC lowered its 2026 world oil demand growth forecast for a fifth straight month to 380,000 bpd, while OPEC output fell 640,000 bpd in August as Saudi exports faced new disruptions.
US crude inventories fell just 391,000 barrels last week against expectations for a 1.55 million barrel draw, as strong refining activity offset the supply squeeze.

Day’s Ledger*

Economic Data

US August CPI
India Weekly FX Reserves
UK July GDP Data

Corporate Actions

Earnings: CMI Limited
Raymond Realty to consider fundraising

Policy

Bank of Russia Interest Rate Decision
ECB President Lagarde Speaks
ECB's Lane Speaks

Tickers to Watch

CANARA BANK to raise up to 45 billion rupees via Basel III-compliant AT-1 bonds, part of a broader plan that also includes up to 40 billion rupees via Tier 2 bonds.
GODREJ PROPERTIES estimates financial impact of settling disputes over Godrej Air Project in Gurugram at 700 million rupees, per its response to NSE.
KOTAK MAHINDRA BANK Group President and Head - Commercial Bank Manish Kothari resigns effective September 30, 2026; bank integrates his Commercial Bank portfolio into Retail and Institutional business segments.
HDFC BANK wins all seven Bahrain AT1 mis-selling cases, with the High Civil Court finding insufficient evidence to substantiate investors’ claims and ordering them to bear the proceedings costs.
RELIANCE COMMUNICATIONS informed that Supreme Court dismisses review petitions filed by Reliance Communications and Reliance Telecom.
BSE subscribes to IIBH’s rights issue for 92.8 million rupees, raising its stake to 5.54% from 3.33%, with direct holding set to rise to 20% after completion of the acquisition.

Must Read

(*Compiled from various media sources)

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