Share markets slid in Asia on Monday while U.S. bond yields hit eight-month peaks as the United States and Iran traded escalating threats and ​Israel planned for "weeks" more fighting, sending oil prices on another roller-coaster ride.

Iran said on Sunday it would strike the energy and water systems ‌of its Gulf neighbours if U.S. President Donald Trump followed through with a threat to hit Iran's electricity grid in 48 hours, extinguishing any hope of an early end to the war, now in its fourth week.

Trump warned Iran had two days to fully open the vital Strait of Hormuz, which is effectively closed for most vessels with little prospect of naval protection for shipping.

Japan's Nikkei (.N225), opens new tab fell ​3.8%, bringing losses for March so far to over 13%. South Korea's market (.KS11), opens new tab shed 5.2%, making a 12% drop for the month.

MSCI's broadest index of ​Asia-Pacific shares outside Japan (.MIAPJ0000PUS), opens new tab lost 2.5%, while Chinese blue chips (.CSI300), opens new tab dropped 1.9%.

Oil prices were again choppy with Brent last up 0.4% at $112.62 ⁠a barrel, and 55% higher on the month so far. U.S. crude gained 0.8% to $98.98.

Near-term supplies have been aided by the U.S. allowing Iranian and Russian oil ​to be sold from tankers, but the growing risk of longer-term shortages was lifting futures down the curve. September Brent, for instance, was up $1 at $92.90 suggesting high prices were ​here to stay.

"The war could still go on for many weeks yet and see oil prices rise say to $150 a barrel," said Shane Oliver, head of investment strategy at fund manager AMP. "And the steady destruction of energy infrastructure means it will take longer to get supply back to normal."

"It's also worth noting that past oil shocks unfolded over many months in terms of the rise ​in oil prices as the full impact became clearer – it was over about 4 months in 1973 and a year in 1979."

Analysts at HSBC noted Singapore jet fuel ​was up 175% this year to a multi-decade high, while Asian liquefied natural gas had climbed 130%.

Bunker fuel used in shipping had blown out, raising the cost of transporting goods, while ‌surging fertiliser ⁠prices will make food more expensive.

For Europe, EUROSTOXX 50 futures and DAX futures both slid 1.2%, while FTSE futures fell 0.8%. On Wall Street, S&P 500 futures dipped 0.2%, while Nasdaq futures lost 0.3%.

The inflationary pulse from energy has seen markets abandon hopes for further monetary easing globally and swing to pricing in rate hikes across most developed nations.

Futures have wiped ​out expectations for 50 basis points of ​easing from the Federal Reserve this ⁠year, with even a small chance the next move could be up.

The hawkish sea change has hammered bonds and sent yields climbing, adding to borrowing costs for many governments already struggling with deficits and debt.
The prospect of higher costs and softer consumer demand ​has clouded the outlook for corporate profits, while the jump in yields made equity valuations look ever more stretched.