Investors, already spooked by concerns over extended tech valuations and the huge spending on AI, ran for the hills as crude rocketed to its highest level since the Russian invasion of Ukraine in 2022.
Fears grew that the Middle East conflict could last for some time after US President Donald Trump said only the "unconditional surrender" of Iran would end the war.
He added at the weekend that the spike in prices was a "small price to pay" to eliminate Iran's nuclear threat, reiterating the White House's insistence that the rise is temporary.
Both main contracts, which had surged more than a quarter last week, spiked as Iran carried out retaliatory strikes against crude-producing Gulf nations.
West Texas Intermediate and Brent both jumped around 30 percent to hit peaks just short of $120 a barrel. European gas prices also soared 30 percent on Monday.
Since the beginning of the war, WTI rose more than 75 percent and Brent more than 60 percent before easing on the G7 news.
However, the surge was pared as French officials confirmed a Financial Times story that finance ministers from the Group of Seven industrialised nations would discuss tapping emergency reserves to ease the supply strain.
Attacks on oilfields were reported in southern Iraq and in the northern autonomous Kurdistan region, which forced a US-run oilfield to cease production, while the United Arab Emirates and Kuwait have started reducing output.
That came with maritime traffic in the Strait of Hormuz -- through which a fifth of global crude passes -- halted since the war began on February 28.
The prospect of high energy prices for a sustained period has fanned fears of a fresh spike in inflation that could hit the global economy while preventing central banks from cutting interest rates to support growth.
With the prospect of the global economy taking a blow from the crisis, equity markets extended last week's losses, though they pared some of the early retreat.
Seoul, which had been the best performer this year thanks to a tech rally, tumbled more than eight percent at one point before closing six percent down, while Tokyo shed more than five percent and Taipei fell more than four percent.
Hong Kong, Shanghai, Sydney, Singapore, Manila, Bangkok, Mumbai, Jakarta and Wellington were also sharply lower.
London, Paris and Frankfurt opened on the back foot.
"Stocks continue to face stiff headwinds, with markets in Europe and Asia, specifically Japan, more vulnerable in the short-term given that those are heavy energy importers, and with those markets having vastly outperformed the US year to date, until the Iran war begun," wrote Pepperstone's Michael Brown.
- 'Very small price to pay' -
Futures for all three main indexes on Wall Street were down more than one percent, while the dollar jumped against its peers as traders sought out its safe haven status.
The prospect of interest rates being kept elevated, or even raised to combat inflation, saw gold prices sink more than one percent to around $5,100 an ounce.
"The deeper shock is spreading across the production chain," said SPI Asset Management's Stephen Innes.
"Gulf producers are scaling back output because storage hubs are filling up and export flows are seizing. Qatar has halted liquefaction at key gas facilities, a move that will take weeks to reverse even if the conflict cools tomorrow.
"In other words, the market is not dealing with a headline shock. It deals with a physical disruption of oil molecules.
"Oil above $100 is not just a commodity rally. It becomes a tax on the global economy."
However, Trump sought to offer reassurance that the spike in crude would not last long.
"Short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay for U.S.A., and World, Safety and Peace," he wrote on social media Sunday evening Washington time.
"ONLY FOOLS WOULD THINK DIFFERENTLY!"
Michael O'Rourke at JonesTrading warned that the pain for investors could last for some time.
"The worst is yet to come in the stock market reaction" he said. "I would expect more of a risk-off mood until we get some tangible positive news."
Compounding the downbeat mood was news Friday that the US economy unexpectedly lost jobs in February, while unemployment edged up.
Another report also pointed to a drop in US retail sales.
- Key figures at around 0815 GMT -
West Texas Intermediate: UP 13.7 percent at $103.31 per barrel
Brent North Sea Crude: UP 16.3 percent at $107.83 per barrel
Seoul - Kospi: DOWN 6.0 percent at 5,251.87 (close)
Tokyo - Nikkei 225: DOWN 5.2 percent at 52,728.72 (close)
Hong Kong - Hang Seng Index: DOWN 1.4 percent at 25,408.46 (close)
Shanghai - Composite: DOWN 0.7 percent at 4,096.60 (close)
London - FTSE 100: DOWN 1.4 percent at 10,145.62
Euro/dollar: DOWN at $1.1560 from $1.1604 on Friday
Pound/dollar: DOWN at $1.3343 from $1.3385
Dollar/yen: UP at 158.40 yen from 157.88 yen
Euro/pound: DOWN at 86.66 pence from 86.67 pence
New York - Dow: DOWN 1.3 percent at 47,501.55 (close)
jug-stu-dan/mtp
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