Following a volatile start to the session, MSCI's broadest index of Asia-Pacific shares outside Japan was down 1.7 percent, led by declines for shares in Taiwan and South Korea, which at their lowest point exceeded 3 percent and 5 percent, respectively. Japan's Nikkei 225 fell 0.8 percent, while S&P 500 e-mini futures eased 0.3 percent.

Chinese stocks fell by less than the regional benchmark, with the CSI 300 percent lower after export and import data for June released on Tuesday beat economists' expectations.

Brent crude futures climbed 1.7 percent to $84.72 a barrel, after earlier hitting their highest since mid-June at $85.64.

Markets were also rattled by hawkish comments on Monday from Federal Reserve Governor Christopher Waller, who said the US central bank may need to raise interest rates "in the near term" if data shows inflation continuing well above the 2 percent target.

US CPI data is due for release later on Tuesday, followed by comments from Fed Chair Kevin Warsh, who will deliver the central bank's semi-annual monetary policy report to Congress.

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"While the risk had been building in the system over the past week, markets reacted aggressively" to the latest headlines from the Iran conflict, said Chris Weston, head of research at Pepperstone in Melbourne.

"The prospect of tighter monetary policy into a potential energy shock is rarely supportive for risk assets."

Overnight, stocks on Wall Street sold off and oil futures surged more than 9 percent as the conflict between the US and Iran re-ignited, once again throttling the flow of goods through the Strait of Hormuz. The S&P 500 closed 0.8 percent lower and the Nasdaq Composite fell 1.6 percent.

Fed funds futures are pricing in an implied 43.3 percent probability of a 25-basis-point hike at the US central bank's next two-day meeting on July 28-29, compared to a 34.2 percent chance on Friday, according to the CME Group's FedWatch tool.

The yield on the US 10-year Treasury bond was up 1.6 basis points at 4.624 percent.

The US dollar index, which measures the greenback's strength against a basket of six currencies, nudged 0.1 percent lower to 101.18, trading around its highest levels of the month. Gold was up 0.3 percent at $4,012.37.

"The risk to Asian markets from the re-escalation in US-Iran tensions runs mainly through the impact of higher energy prices on currencies and policy interest rates," said Eastspring Investments' chief investment officer Vis Nayar in a note. "Persistently higher oil prices would increase the risk that the US Federal Reserve would hike the Fed funds rate later this year."

In Taipei, the Taiwanese benchmark fell to a one-month low, leading regional declines.

In Seoul, stocks moved between negative and positive territory as shares in SK Hynix veered between gains and losses, falling as much as 5.6 percent after an earlier rally. The volatility for the memory chipmaker comes after a dramatic plunge a day earlier following its Nasdaq debut last week.

In cryptocurrencies, bitcoin was 0.4 percent higher at $62,415.22 while ether was up 0.7 percent at $1,778.30.

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