Asian equity markets retreated on Wednesday as a fresh spike in crude oil prices reignited concerns over inflation and monetary policy tightening.
The MSCI Asia-Pacific index, excluding Japan, fell 1%, while Japan's Nikkei 225 suffered a sharper decline of 2.9%.
The broad-based weakness reflects growing investor anxiety that sustained energy cost pressures could force central banks to maintain restrictive stances for longer than previously anticipated.
The sell-off in equities was accompanied by a rise in bond yields, signaling that markets are repricing the inflation risk associated with the ongoing Gulf conflict.
Higher oil prices act as a tax on consumers and businesses, potentially dampening economic growth while simultaneously complicating the path for interest rate cuts.
This dual pressure has created a challenging environment for risk assets, with investors rotating away from growth-sensitive equities and demanding higher compensation for holding duration risk in bonds.