The sudden relief rally brought about by U.S. President Donald Trump's postponement of a threat to attack Iran's power infrastructure didn't even last a day, as oil prices bounced back on Tuesday and stocks were faring better compared to the recent rout, albeit remaining on shaky ground.
With Tehran denying it had engaged in negotiations with Washington and global energy supply still crippled, risk sentiment quickly turned sour in Asia on Tuesday, and Brent crude futures swiftly bounced back to around $100 a barrel.
Equity markets in New York jumped, and crude plunged earlier Monday after the U.S. president made the surprise announcement that he would hold off fresh attacks on energy infrastructure for five days following negotiations with an unidentified "top person."
The news ramped up hopes for an end to the conflict and the reopening of the Strait of Hormuz, through which about a fifth of global oil and gas normally flows.
Brent slumped as much as 14% at one point to $96, while all three main indexes on Wall Street climbed more than 1%, with commentators suggesting prices could drop to as low as $90.
However, the mood was deflated somewhat after Iranian media said there had been no talks between Tehran and Washington.
And the Fars news agency reported that Deputy Speaker of Parliament Ali Nikzad said there would be no talks, while the Strait of Hormuz would remain effectively closed.
"The signal here is clear," said Pepperstone's Michael Brown. "Trump has pulled back on the ultimatum issued over the weekend, is seemingly seeking de-escalation for the first time since the conflict began, and looks to be trying to find an off-ramp to allow that to happen.
"To me, this is by far the most important part of all this."
Asian shares rose on Tuesday in a catch-up rally to their global counterparts from overnight, but traded well below intraday highs as investors weighed on conflicting signals about the war.
The dollar also clawed back its losses, while U.S. Treasury yields resumed their climb.
Even as Trump added five days to his Saturday ultimatum for Iran to reopen the Strait of Hormuz, the situation remains tense and there's been little sign of an imminent end to the Middle East conflict.
With this, crude prices bounced, with Brent and WTI both climbing slightly on Tuesday morning, with investors still sceptical about the chances of a breakthrough in talks.
Iran launched multiple waves of missiles at Israel, the Israeli military said, triggering air raid sirens in parts of the country, including Tel Aviv, where blasts from interceptions were heard.
The prolonged energy shock has also left governments around the world scrambling to secure supplies and finding ways to cut back on demand.
Japan plans to start releasing oil from joint stockpiles held by producing nations in the country by the end of March, Prime Minister Sanae Takaichi said in a post on X on Tuesday.
South Korean President Lee Jae Myung called for a nationwide energy-saving campaign, saying public institutions would cut back on their use of passenger cars.
Meanwhile, traders have offered Iranian oil to Indian refiners at a premium to ICE Brent after Washington temporarily removed sanctions to ease the energy crisis, three industry sources said.
Elsewhere in markets, data on Tuesday showed Japan's core consumer inflation slowed below the central bank's 2% target in February for the first time in nearly four years, making the Bank of Japan's (BOJ) communication more difficult as it seeks to raise still-low borrowing costs.
Markets had started this week deep in the red after Trump warned Saturday that Iran had 48 hours to allow traffic through Hormuz or he would strike the country's energy infrastructure.
Tehran replied by saying the waterway "will be completely closed" should he act on his threat.
His decision to U-turn hours before the deadline came up was pounced on by observers as another example of a TACO moment – an acronym of "Trump Always Chickens Out" – in which he escalates before pulling back from the brink.
But Stephen Innes at SPI Asset Management warned the president may have overplayed his hand.
"You can talk down a market. You can jawbone crude lower. You can release emergency reserves and tweak sanctions to flood the tape with supply optics," he wrote.
"But you cannot instantly repair disrupted shipping lanes, fractured refining capacity, or the insurance black hole forming around tanker traffic. The market may trade the headline in the short term, but it settles on the barrel in the medium term. And right now the barrel is still constrained."
Meanwhile, the Wall Street Journal (WSJ) reported that Saudi Arabia and the United Arab Emirates were considering joining the fight following persistent and damaging attacks from Iran since the U.S.-Israel strikes began on Feb. 28.
The article said they were not deploying troops, but pressure was building on them to do so as Tehran looks to exert greater sway over the region.
Iran's choking of the Strait of Hormuz continues to impact airlines, with Vietnam's national air carrier saying it will suspend nearly two dozen domestic flights a week starting next month because of limited fuel supplies.
That came days after Myanmar's national carrier said it would also cancel some domestic flights "due to unavoidable circumstances," without providing details.
And Hong Kong's Cathay Pacific extended its flight suspensions to and from Dubai and Riyadh by a month until May 31.
