Asian markets tumbled on Monday and oil prices jumped after Donald Trump and Iranian leaders traded threats over the key Strait of Hormuz, while Israel said the Middle East war could last several more weeks.
In Tokyo, the Nikkei 225 closed down 3.5% to 51,515.49 points; Hong Kong - Hang Seng Index ended down 3.5% to 24,382.47 points and Shanghai - Composite closed down 3.6% to 3,813.28 points Monday.
With the conflict now in its fourth week and showing no sign of ending, the head of the International Energy Agency warned of the worst global energy crisis in decades and said the world economy was under "major threat" from it.
Observers, meanwhile, have also raised the prospect of a surge in inflation that could force central banks to hike interest rates, while the choking off of fertiliser shipments has also fanned concerns about global food security.
The US president on Saturday gave Iran 48 hours to reopen the Strait of Hormuz to shipping or face the destruction of its energy infrastructure.
The ultimatum, made just a day after the US leader said he was considering "winding down" military operations, came as the waterway -- through which a fifth of global oil and gas flows -- remained effectively closed.
Iran warned Hormuz "will be completely closed" if Trump acted on his threat.
And powerful parliament speaker Mohammad Bagher Ghalibaf threatened to irreversibly destroy vital infrastructure across the region, which he said would cause oil prices to rise "for a long time", if Tehran's own infrastructure was hit.
Iranian media reported explosions in Tehran on Monday as Israel announced it launched another wave of strikes, while Saudi Arabia and the United Arab Emirates reported coming under fresh attacks.
The escalation hammered stock markets, with Seoul and Tokyo -- which had been the standout performers before the war started -- taking the brunt of the selling, shedding 6.5% and 3.5%, respectively.
Hong Kong and Shanghai shed more than 3%, while Singapore, Taipei, Mumbai, Bangkok and Manila all lost between two and three percent. Sydney and Wellington were also deep in negative territory.
South Korea's won dropped to 1,510 won per dollar, its weakest level since 2009.
Oil prices jumped more than 2% with Brent above $114 and West Texas Intermediate topping $101.
"The outcome and Trump's next steps, particularly in the event of escalation, would have significant implications for markets through the remainder of the week and into month and quarter end," wrote Pepperstone's Chris Weston.
He added that while the president has often pulled back from the brink on issues in the past, Trump "has also shown credibility in following through with military action when demands are not met, so markets will place weight on his weekend post on Truth Social".
"If we move past the deadline, focus will quickly shift to the scale of any action against Iran and the nature of Iran's response, particularly toward US bases and its allies."
IEA boss Fatih Birol said Monday: "The global economy is facing a major, major threat today, and I very much hope that this issue will be resolved as soon as possible.
"No country will be immune to the effects of this crisis if it continues to go in this direction. So there is a need for global efforts."
Birol added that the world was losing more oil each day than the combined impact of both 1970s oil shocks and Russia's invasion of Ukraine.
His remarks came as central banks reconsider their monetary policies amid expectations that the surge in oil prices will send inflation soaring, with the Reserve Bank of Australia last week hiking interest rates.
The prospect of higher borrowing costs has hammered non-yielding gold, which has fallen for eight straight days and just suffered its worst weekly drop since 1983.
