The benchmark S&P/ASX200 index had fallen 359.1 points, or 4.06 per cent, to 8,491.8, while the broader All Ordinaries had dropped 371.1 points, or 4.08 per cent, to 8,714.0.
The carnage put the ASX200 at its lowest level since late November and wiped out nearly $130 billion in value from the index's market capitalisation.
The only other time since the pandemic when the market has dropped so heavily was in April 2025, when the ASX200 plunged 4.2 per cent amid US President Donald Trump's intensifying trade war.
Brent crude on Monday spiked to $US108 a barrel, the commodity's highest price since August 2022.
It had been changing hands at just over $60 at the start of 2026.
The strategic implications of the spiralling war in Iran were multi-faceted but the economic ones could be reduced to oil markets and supply shocks, Capital.com analyst Kyle Rodda said.
"Increasingly, energy supply is being threatened, mostly due to disrupted trade flow through the Strait of Hormuz, but now increasingly because of attacks on energy infrastructure as a tactic of war," he said.
Markets were also reacting to a surprise drop in US jobs announced over the weekend, NAB head of rates strategy Ken Crompton said.
US non-farm payrolls shrank by 92,000 in February, a worse outcome than any economist surveyed by Bloomberg had predicted.
At midday, every sector of the ASX was in the red except for energy, which was up 0.2 per cent.
The materials sector, which includes mining, was the biggest loser, dropping 5.6 per cent.
BHP was down 5.9 per cent, Rio Tinto had retreated 3.9 per cent and Fortescue had lost 3.9 per cent.
Gold wasn't proving to be much of a safe haven, with the yellow metal changing hands for $US5,085 an ounce, down nearly $75 from Friday.
Goldminers Evolution and Northern Star were both down 5.8 per cent.
All of the big four banks were deep in the red, with CBA falling 4.0 per cent, Westpac losing 4.2 per cent, ANZ dropping 4.3 per cent and NAB declining 4.9 per cent.
Just seven companies from the energy sector out of the 200 on the ASX's main benchmark were in the green shortly after midday.
Woodside was up 1.1 per cent, Santos had climbed 2.6 per cent and Whitehaven Coal had lifted 1.0 per cent.
Karoon Energy was the biggest gainer, climbing 8.3 per cent.
The losses leave the ASX200 down 2.6 per cent since the start of the year.
The Aussie dollar dropped to a one-month low, buying 69.61 US cents, down from 70.32 US cents on Friday afternoon.
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