[Daynarr]

You can see morale drop when unit is influenced by fear. However, fear is not battle wide. Only units close to the one that causes fear are affected by it. It doesn't have to happen instantly either. Of course, there are spells that cause fear as well and there is global (Dark Skies) that causes fear too. If you check and army morale that is within enemy dominion and Dark Skies influence, you will see that their morale drops drastically (sometimes it even goes into negative numbers).