Global markets swooned on Friday as news of U.S. authorized air strikes in Iraq raised concerns of escalating geopolitical tensions and market watchers expect the overhang to remain for some time.
In Asia, Japan's Nikkei 225 took the largest hit, tumbling over 3 percent, as investors flocked to safe haven assets such as the yen and gold. The Japanese currency strengthened 0.3 percent against the U.S. dollar, while spot gold rose 0.2 percent.
In a press conference late Thursday, U.S. President Barack Obama announced his authorization of targeted airstrikes in Northern Iraq to protect American personnel. The airstrikes would be the first carried out by the U.S. military in Iraq since the withdrawal of its forces at the end of 2011.
"Geopolitical risk is the most influential force in markets right now. Markets are worried this may be a longer-term game for the U.S. in Iraq, and that's why you're seeing the risk-off trade emerge so fast," Evan Lucas, market strategist at IG told CNBC.
"There is a high degree of uncertainty as we'll need to see what happens following the initial response of targeted airstrikes and whether the U.S. needs to put troops back on the ground," he said.
Obama's announcement comes amid mounting tensions in the Middle East and Eastern Europe, with a build-up of Russian troops on Ukraine's eastern border fueling further concerns of conflict. The head of NATO on Thursday called on Russia to "step back from the brink" of war by pulling its troops back from the Ukrainian border and warned further intervention in Ukraine would bring it greater isolation in the world.