European shares tumbled to their lowest levels in over two months on Monday, driven by surging oil prices and mounting concerns over inflation as the US-Israeli war with Iran shows no signs of easing.
In London, the FTSE 100 opened down 1.3%, while Paris’s CAC 40 lost 2.4% and Frankfurt’s DAX fell 2.5%. Dublin’s ISEQ index also opened lower by 2.4%, with stocks including Kingspan, Cairn Homes, and Glanbia all in retreat.
Oil prices jumped more than 15% to just under $120 a barrel, stoking fears of prolonged supply disruptions through the Strait of Hormuz. About 20% of the world’s crude and gas passes through this key shipping route, which has been nearly halted since the conflict began on February 28.
The escalation in the Middle East was underscored by Iran naming Mojtaba Khamenei as successor to his father, Ali Khamenei, signaling that hardliners remain firmly in control of Tehran. The announcement comes as US and Israeli forces continue airstrikes across Iran and the region, targeting critical energy infrastructure.
European banks, already hit by last week’s market volatility, fell a further 3.2%, while tech stocks lost 3.1%. Airlines faced steep declines as Lufthansa and Air France-KLM dropped 3.9% and 5.2%, respectively. Ryanair also traded lower in Dublin. On the other hand, energy stocks edged up 0.1% and defence firm Leonardo added 1.4%, benefiting from rising oil prices and geopolitical uncertainty.
Market participants are now awaiting comments from European Central Bank President Christine Lagarde, along with statements from ECB board member Piero Cipollone and eurozone finance ministers at a Eurogroup meeting later in the day. Economic data released Monday showed that German industrial orders fell more than expected in January, adding further pressure to European markets.
Asian markets also faced heavy losses. Japan’s Nikkei 225 dropped more than 5%, while South Korea’s Kospi fell 6%, reflecting the region’s dependence on Middle Eastern oil. Japan imports roughly 95% of its crude, with about 70% passing through the Strait of Hormuz, while South Korea ranks as the world’s fourth-largest crude importer. Japanese Prime Minister Sanae Takaichi said the country holds emergency oil reserves equivalent to 254 days of domestic consumption, and the government is reportedly considering releasing some of these reserves.
US President Donald Trump dismissed the spike in oil prices as a temporary effect of military action, describing it on social media as “a very small price to pay for USA, and World, Safety and Peace.” Analysts, however, warn that prolonged disruption in energy supplies could push inflation higher and weigh on global economic growth.
Investors remain cautious as the geopolitical conflict continues to disrupt energy markets, pushing crude prices higher and driving further declines across global stock markets.
