investingLive Asia-pacific FX news wrap 13 Jul

Gulf war escalates through five waves of strikes as oil surges and Asian markets tumble

Bullet summary:

Weekend attacks from both sides saw Iran extend strikes to Qatar and the UAE for the first time in months, plus Jordan, Kuwait and Oman, while again declaring the Strait of Hormuz closed; the US said it had struck over 300 Iranian targets over three nights.
A second US wave followed at 5pm ET Sunday, hitting Bandar Abbas, Qeshm Island, Sirik and Jask, with at least 15 strikes on Bandar Abbas alone and Iran’s largest petrochemical hub at Mahshahr also hit; some reports called it bigger than the first wave.
Iran retaliated by firing on US vessels and commercial shipping near its coast, striking Jordan (suspending Amman airport flights), Bahrain (multiple blasts, reported direct hits on the US Navy’s 5th Fleet HQ) and Kuwait (explosion at US bases), while declaring Hormuz fully and indefinitely closed.
A third US wave, confirmed by CENTCOM, hit dozens of Iranian air defence, radar, missile and drone targets, using attack drones in the campaign for the first time; unconfirmed reports suggested a strike killed Iran’s IRGC chief.
Iran responded with further intensive missile salvos, with a source close to Iranian official Ghalibaf warning that attacks will expand and the conflict will deepen.
Brent crude opened up over 3.5% and extended gains through the session
Around 20 vessels transited Hormuz in coordination with the US military over 24 hours, alongside several moving independently. This figure cited by US authorities was contradicted by ship tracking firms, putting the nunber of transits much lower.
Asian equities fell sharply: Japan’s Nikkei dropped around 1%, weighed by oil-driven cost concerns and a chip stock selloff, while South Korea’s KOSPI plunged as much as 7%, its lowest level since May 4, as SK Hynix and Samsung extended a post-listing selloff.
Gold slid over 1% and the dollar firmed as markets priced in a firmer rate outlook, while US and European equity futures extended losses ahead of Tuesday’s CPI print and Fed Chair Warsh’s testimony to Congress.

Wrap:
What began as a weekend of tit-for-tat strikes has, over the past 48 hours, escalated into one of the most intense exchanges of the four-month Gulf war, testing the market’s working assumption that these skirmishes would stop short of full-scale conflict.

The sequence started with Iran extending its strikes beyond its usual targets to hit Qatar and the UAE for the first time in months, alongside renewed strikes on Jordan, Kuwait and Oman, while again declaring the Strait of Hormuz closed. The US answered with a reported 300-plus strikes on Iranian targets over three nights. A second, larger US wave followed at 5pm Eastern time Sunday, hitting Bandar Abbas, Qeshm Island, Sirik and Jask, with at least 15 strikes concentrated on Bandar Abbas and a strike also reported on Iran’s largest petrochemical hub at Mahshahr in Khuzestan province. Iranian forces fired on commercial vessels transiting the strait during the wave, and US aircraft downed an Iranian cruise missile and a one-way attack drone.

Iran’s response was rapid and wide-ranging. Its Revolutionary Guards fired on US vessels approaching Iranian shores and on two commercial vessels described as rogue, while strikes hit Jordan, forcing the suspension of flights at Amman airport, and Bahrain, where multiple blasts were reported along with direct hits on the US Navy’s 5th Fleet headquarters. Kuwait also reported an explosion at US bases. A source close to Iranian official Mohammad Baqer Ghalibaf said the strait was now completely closed off from all routes and would not reopen in the medium term, warning that attacks would expand and the conflict deepen.

A third wave of US strikes, confirmed by CENTCOM, hit dozens of Iranian air defence systems, coastal radar sites, and missile and drone capabilities, marking the first use of one-way attack aerial and sea drones in the campaign. Unconfirmed reports suggested the strikes had killed Iran’s IRGC chief at an underground command centre. Iran answered with further intensive missile salvos, underscoring the source’s warning that the conflict is deepening rather than winding down.

The scale of the escalation has left analysts describing the Strait of Hormuz as locked in an impossible stalemate. Iran retains an asymmetric ability to strike shipping cheaply, and degrading its missile and drone capacity is not the same as eliminating it, meaning even a single remaining drone could sustain the threat to transiting vessels. With none of Iran’s frozen funds released and its oil back under US sanctions, Tehran appears likely to keep doubling down on control of the strait rather than step back.

Markets have reacted accordingly. Brent crude opened up over 3.5% and pushed higher through the session, even as roughly 20 vessels (this number disputed) were reported to have transited the strait in coordination with the US military over the prior 24 hours, alongside several more moving independently, a reminder of how contested the picture on actual shipping flows remains. Asian equities bore the brunt of the risk-off move, with Japan’s Nikkei falling around 1.5% as rising oil costs clouded the outlook just as earnings season began, compounded by a chip stock selloff. South Korea fared far worse, with the KOSPI plunging as much as 7% intraday to its lowest level since May 4, as profit-taking in SK Hynix and Samsung Electronics deepened concerns over the durability of the AI memory rally. Gold slid over 1% as the dollar firmed on revived rate hike expectations, while US and European equity futures extended losses heading into a critical Tuesday, when June CPI data and Fed Chair Warsh’s testimony to Congress will land directly into a market already on edge over how far this conflict still has to run.