HONG KONG: Asian markets tumbled Thursday on fears the Israel-Hamas crisis would spill over into a wider conflict in the Middle East, with some warning that a full-blown war was increasingly likely.
With Benjamin Netanyahu building up a huge force ahead of an expected land incursion into Gaza, Iran has warned of a possible pre-emptive strike and called for an oil embargo against Tel Aviv.
President Joe Biden was due to make a television address on the crisis later in the day, having delivered full US backing for Israel in person on Wednesday during a solidarity visit.
However, Jordanian King Abdullah II, Palestinian leader Mahmud Abbas and Egyptian President Abdel Fattah al-Sisi cancelled a meeting with Biden after a deadly strike on a hospital in Gaza.
The tragedy, which each side has blamed on the other — with Biden backing Israel — ratcheted up tensions and saw Lebanon’s Iran-backed Hezbollah movement call for a “day of rage”.
Meanwhile, Iran’s Foreign Minister Hossein Amir-Abdollahian called for an “immediate and complete embargo on the Zionist regime by Islamic countries, an oil embargo against the regime”.
He also urged Muslim countries to expel Israeli ambassadors in comments at a summit of the Organisation of Islamic Cooperation, called in Saudi Arabia to discuss the crisis.
“The risks of an escalation have risen on the back of the latest news reports regarding the hospital bombing,” Jane Foley, of Rabobank, said.
“On any clear escalation, we can expect to see a ratcheting up of risk aversion” in markets, she added.
CMC Markets’ Michael Hewson added: “In the absence of a positive catalyst in the coming days there is a risk we could start to see further weakness if tensions escalate further.”
All three main indexes on Wall Street ended in the red, and Asia followed suit, with Hong Kong more than two percent lower, while Tokyo, Sydney, Shanghai, Seoul and Singapore were more than one percent down.
There were also losses in Mumbai, Bangkok, Manila, Jakarta and Wellington, and London, Paris and Frankfurt opened lower.
“The window for a diplomatic off-ramp to avert a wider war in the Middle East appears to be closing,” said RBC Capital Markets’ Helima Croft.
“A regional crisis appears the most likely outcome, especially with Israel still seemingly committed to a ground offensive.”
The prospect of an all-out war pushed oil prices up Wednesday, though Washington’s decision to suspend some sanctions on Venezuelan output tempered the gains and both contracts were slightly lower in Asian trade.
Risk aversion among traders was increased by concerns the Federal Reserve would hike interest rates again, or at least keep them elevated for an extended period.
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