European Stocks Slide as Middle East War Fears and Rising Oil Prices Shake Markets

European shares extended their losses on Tuesday as a deepening global equity selloff rattled investors. Mounting concerns over a prolonged Middle East war and a sharp surge in oil prices fueled fears of higher inflation and increased cost-of-living pressures across the euro zone.

The pan-European STOXX 600 index fell 1.3% to 615.72 points by 0804 GMT, after closing at its lowest level in more than two weeks in the previous session. The decline reflects growing market anxiety over geopolitical tensions and the potential economic fallout from escalating conflict in the Middle East.

Sector performance highlighted the broad-based weakness in European stock markets. Utilities and banking stocks led the downturn, each dropping 2.6%, as investors moved away from risk-sensitive assets. In contrast, energy stocks edged higher, building on gains from the prior session as crude oil prices surged amid supply concerns.

Investor sentiment deteriorated further after U.S. President Donald Trump defended a broad and open-ended military campaign against Iran, signaling that the objectives of the conflict had evolved. Adding to market jitters, an official from Iran’s Revolutionary Guards claimed that the Strait of Hormuz had been closed and warned that any vessel attempting to pass through would be targeted. The threat to one of the world’s most critical oil transit routes drove up global oil and gas shipping rates, intensifying worries about energy supply disruptions.

European Central Bank Chief Economist Philip Lane told the Financial Times that a prolonged war could significantly increase inflationary pressures while dampening economic growth in the euro area. Rising energy costs are already raising concerns about stagflation risks in Europe.

Among individual stocks, French aerospace and defense group Thales gained 0.7% after reporting annual core profit slightly above market expectations, offering a rare bright spot in an otherwise cautious European market environment.