A man looks at a screen showing global stock market information on the street in Tokyo, Japan.

Chris McGrath | Getty Images

Asia Pacific markets were set to trade lower Monday following heightened geopolitical tensions in the Middle East.

Nikkei futures pointed to a lower open in Tokyo as the Japanese market returns to its first day of trade in the new year.

In Australia, the ASX 200 was down 0.7% in early trade, with most sectors trading lower. The heavily-weighted financials subindex was down 0.94% as shares of major banks in the country fell, but the energy sector rose 0.41%.

Australia has been grappling with a devastating fire season that’s expected to worsen as the summer months continue. Wildfires have killed at least 18 people so far, destroyed more than 1,000 homes and nine million acres. Nearly half a billion animals in the state of New South Wales are said to have been killed by the blazes in the last few months and the death toll is expected to rise.

Global tensions elevated late last week after Iran’s top military commander was killed in a U.S. airstrike in Baghdad, which raised concerns of retaliation from Iranian forces. The Iranian regime said Sunday that it would no longer abide by uranium enrichment limits established in the 2015 nuclear deal, which the U.S. unilaterally withdrew from in 2018.

Oil prices surged 3% on Friday on worries that potential conflict between the U.S. and Iran could disrupt energy production in the region.

U.S. crude futures were up 1.25% at $63.84 per barrel on Monday morning in Asia. Global benchmark Brent added 1.33% to $69.51.

READ ALSO  Stocks rally as dollar and Treasuries pull back

“Geopolitical tensions look like remaining elevated in coming days, so lending support to oil prices and keeping risk asset markets on the defensive, including ‘growth’ currencies,” Ray Attrill, head of foreign-exchange strategy at the National Australia Bank, wrote in a morning note.

In the currency market, the U.S. dollar traded near flat against a basket of currencies. The dollar index was around 96.813, dipping from an earlier high of 96.860.

The Japanese yen changed hands at 107.84 per dollar, strengthening from levels above 108.50 in the previous week. Meanwhile, the Australian dollar traded down 0.17% at $0.6939.