Jakarta. The Jakarta Composite Index (JCI) fell sharply by 1.03 percent to close at 7,563.26 on Wednesday as escalating tensions in the Middle East weighed heavily on market sentiment.

According to Pilarmas Investindo Sekuritas, the drop is primarily driven by the market's reaction to the ongoing conflict in the region. Tensions have intensified following Iran's ballistic missile strikes on Israel, a move seen as a response to Israel's military actions in southern Lebanon.

 “Iran's actions are retaliation for Israeli military pressure on Hezbollah, an ally of Iran,” Pilarmas said in its research note. 

The firm also indicated that Israeli Prime Minister Benjamin Netanyahu is expected to respond, with reports suggesting that the United States will provide full support to Israel's defense. “Markets are concerned that this could lead to an escalation of conflict in the Middle East, resulting in global security instability,” Pilarmas added.

Moreover, Pilarmas highlighted that Iran's involvement in the conflict, combined with its status as an OPEC member, raises the risk of disruptions to oil supply. "The potential for extended warfare may impact production facilities and oil supplies, causing further disruptions and affecting oil exports," the report explained.

Globally, shares were mixed on Wednesday, with European indices showing mostly positive movement. Germany's DAX gained 0.1 percent to 19,232.74, while the FTSE 100 in London rose 0.4 percent to 8,311.82. Paris's CAC 40 increased by 0.5 percent to 7,611.12.

With Shanghai and other markets in China closed, trading crowded into Hong Kong. Hang Seng surged 6.2 percent to 22,443.73, driven by optimism over recent measures by Beijing to revitalize the Chinese economy, particularly in the struggling property sector. 

However, Tokyo's Nikkei 225 fell 2.2 percent to 37,808.76, following the appointment of Shigeru Ishiba as the new leader of the ruling Liberal Democratic Party, replacing Fumio Kishida.

Oil prices continued to rise in the wake of Iran's missile strikes on Israel, raising concerns about potential disruptions to supply. US crude was up $1.51 at $71.34 per barrel. Brent crude climbed $1.45 to $75.01 per barrel.