Brent jumped 17 percent to $108.77 a barrel, the biggest daily gain since the start of the pandemic in 2020 and on top of a 28 percent rise last week. US crude rose 18 percent to $107.56, threatening to push petrol prices quickly skyward.

Iran named Mojtaba Khamenei to succeed his father Ali Khamenei as supreme leader, signaling that hardliners remain firmly in charge in Tehran a week into its conflict with the United States and Israel.

That was unlikely to be welcomed by US President Donald Trump, who had declared the son "unacceptable".

With no sign of an end to hostilities in the Middle East and tankers still not daring to cross the Strait of Hormuz, investors were bracing for a long stretch of higher energy costs.

"The global economy remains dependent on the concentrated flow of Mideast oil and natural gas through the Strait of Hormuz," noted Bruce Kasman, chief economist at JPMorgan.

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"The near-term scenario is a near-term spike towards $120 bbl followed by moderation as the conflict soon subsides," he added. "But absent a clear and decisive political resolution, Brent crude oil prices are expected to settle at an elevated $80 bbl through mid-year."

Such an outcome could cut global economic growth by an annualized 0.6 percent for the first half of this year, and raise consumer prices by an annual rate of 1 percent, Kasman said.

He cautioned that a broader and sustained conflict could send oil above $120 a barrel and risk a global recession.

All of which was sober news for Japan as a major importer of oil and gas, sending the Nikkei down 6.2 percent, on top of a 5.5 percent drop last week.

South Korea's high-flying market fell closer to earth with a drop of 7.3 percent, having already shed more than 10 percent last week.

The selling swept over Wall Street as S&P 500 futures shed 1.8 percent, while Nasdaq futures dived 2.1 percent. Over in Europe, EUROSTOXX 50 futures and DAX futures both slid 2.5 percent.

Central banks face inflation conundrum

In bond markets, the risk of rising inflation outweighed safe-haven considerations and 10-year Treasury note yields rose 5 basis points to 4.189 percent, up from a trough of 3.926 percent just a week ago.

Interest rate futures also slipped as investors feared the risk of higher inflation would make it harder for the Federal Reserve to ease policy, even though disappointing jobs numbers seemed to argue for stimulus.

Data on US consumer prices due on Wednesday is forecast to show the annual pace holding at 2.4 percent in February.

The Fed's preferred measure of core inflation is out on Friday and is forecast to hold at 3.0 percent, well above the central bank's 2 percent target, and analysts see a risk of an even higher number.

The danger of energy-driven inflation has led markets to wager the next move in rates from the European Central Bank could be up, possibly as early as June.

For the Bank of England, markets have also shifted to pricing just a 40 percent chance of one more easing, compared with two cuts or more before the Middle East conflict started.

Nervous investors sought the liquidity of dollars while shunning currencies from countries that are net energy importers, including Japan and much of Europe.

"Asia takes the brunt of the sharp escalation in oil prices and there are few places to run and hide," said Vishnu Varathan, head of macro research Asia ex-Japan at Mizuho.

"The dollar has to be the one outperforming, given Japan and Korea's exposures here and the sharp pain that can be expected from Brent at $107."

The dollar firmed 0.4 percent to 158.45 yen, while the euro slipped 0.8 percent to $1.1520. The Australian dollar, often sold as a hedge during periods of market volatility, skidded 0.9 percent to $0.6964.

Gold fell 2.4 percent to $5,047 an ounce, with dealers speculating that investors were having to book profits made on the metal's long climb to cover losses elsewhere.

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