European stocks fall as surging oil and rising European gas prices impact markets

European Markets Slide Amid Global Uncertainty

European equities opened the week in the red, following a sharp downturn in Asian markets. Japan’s Nikkei 225 plummeted over 5%, while Taiwan’s main index dropped by 4.4%.

Stock markets across Asia experienced significant losses as oil prices surged close to $120 per barrel, raising concerns for economies that rely heavily on imported energy from the region.

By 09:30 CET, London’s FTSE 100 had slipped 1.6%. Major continental indices, including Frankfurt’s DAX, Paris’s CAC 40, and Milan’s FTSE MIB, each declined by more than 2.4%. Madrid’s IBEX 35 was down nearly 2.7%, and the pan-European Stoxx 600 fell around 2%.

Europe’s economic prospects are being challenged by escalating oil and gas costs, and investor confidence took another hit after disappointing economic data emerged from Germany.

Germany reported declines in both industrial production and factory orders at the start of the year. According to the national statistics office, output shrank by 0.5% in January, following a revised 1% decrease in December.

Meanwhile, speculation is mounting that the European Central Bank may hike key interest rates this year, as soaring energy prices stoke inflation concerns.

The recent turmoil in equity markets has been largely driven by the dramatic rise in oil prices, which has become the primary focus for investors.

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Oil Prices Surge as Middle East Tensions Escalate

Oil markets saw dramatic gains after both sides in the Iran conflict targeted new sites over the weekend, including civilian infrastructure. The ongoing war, now entering its second week, involves areas crucial for global oil and gas supply from the Persian Gulf.

Prices eased somewhat after the Financial Times reported that some G7 nations might release strategic oil reserves to help stabilize the market, according to unnamed sources familiar with the talks.

Crude prices briefly neared $120 per barrel on Monday before retreating, as the intensifying conflict threatened production and shipping routes in the Middle East and unsettled global financial markets.

Brent crude, the global benchmark, surged to $119.50 early in the session before settling near $107.80. The US benchmark, West Texas Intermediate (WTI), reached $119.48 but later dropped to about $103 as European trading began.

Analysts cautioned that attacks on Iranian oil infrastructure could further tighten global energy supplies. Lindsay James, an investment strategist at Quilter, noted, “Iran contributes about 4% of the world’s oil output, with nearly 90% of its exports headed to China.”

Impact on Global Energy and Markets

China, the world’s second-largest economy, holds substantial reserves, but experts warn that any sustained disruption to Iranian exports could hamper its recovery and eventually ripple through global markets.

James also highlighted that assaults on shipping and energy infrastructure in the Gulf could escalate tensions and destabilize markets, which had initially anticipated a swift resolution to the conflict.

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Gas Prices and Currency Movements

The European gas market is also feeling the strain after disruptions in the Strait of Hormuz linked to the conflict. Natural gas futures soared over 14% on Monday, surpassing €61 per megawatt-hour—approaching a three-year high and building on last week’s 67% surge.

Production cutbacks by several major regional suppliers, including the shutdown of Qatar’s Ras Laffan facility—the world’s largest LNG plant—last week, have added to the pressure.

Russia has also threatened to halt natural gas exports to Europe, further fueling market unease.

Europe’s gas reserves remain low, with EU storage levels under 30% and in need of replenishment.

Early Monday, the US dollar strengthened against other major currencies, trading at 158.46 Japanese yen, up from 158.09 late Friday. The euro edged up to $1.1558 from $1.1556.

Elsewhere, gold prices in Europe fell by more than 1% on Monday morning, hovering around $5,100, while most cryptocurrencies advanced. Bitcoin rose 0.7% to $67,774.

IMF Urges Policymakers to Prepare for Unprecedented Risks

With uncertainty mounting over the duration of the conflict—and Asian markets, often seen as global growth drivers, under significant pressure—International Monetary Fund Managing Director Kristalina Georgieva cautioned that leaders must brace for unexpected challenges.

“If this new conflict drags on, it clearly has the potential to impact market confidence, economic growth, and inflation, creating new challenges for policymakers,” Georgieva stated during a keynote address at a symposium in Tokyo on Monday.

She pointed out that, as a general rule, a sustained 10% rise in oil prices over most of the year could add roughly 40 basis points to global inflation and reduce worldwide output by 0.1–0.2%.

“And even if, as we all hope, the conflict ends soon, it’s likely that another shock will follow. My advice to policymakers in today’s world? Anticipate the unimaginable and be ready for it,” she concluded.