European stocks slide as war-driven energy surge fuels inflation fears

WEB DESK: European equity markets tumbled on Monday, slipping to two-month lows as a sharp surge in global energy prices driven by the escalating conflict in the Middle East rekindled fears of entrenched inflation.

According to Al Jazeera News, the pan-European Stoxx 600 dropped 2.3pc in early trading, mirroring a bruising session in Asia where Japanese and South Korean indices triggered circuit-breaker halts after steep declines. In London, the FTSE 100 fell more than 1.7pc, or roughly 130 points, as investors retreated from risk-sensitive assets.

Energy shock fuels inflation fears

The sell-off was largely driven by heightened volatility in energy markets. Brent crude briefly surged towards $120 a barrel before fluctuating between $107 and $116, following reports of significant damage to Iranian energy infrastructure and the continued disruption of traffic through the Strait of Hormuz, a key corridor responsible for nearly 20pc of global oil and liquefied natural gas supply.

Economists are increasingly warning of a potential stagflationary shock where sluggish economic growth coincides with persistent inflation. European natural gas futures have climbed nearly 67pc since hostilities intensified on 1 March, threatening to reverse months of progress by central banks in curbing consumer prices.

Losses were broad-based across the continent. Germany’s DAX and France’s CAC 40 both declined by around 2.6pc, reflecting the vulnerability of Europe’s manufacturing sector to higher fuel costs. Banking stocks also came under pressure as traders reassessed expectations for interest-rate cuts, with markets now anticipating that the European Central Bank may need to keep borrowing costs elevated for longer to contain energy-driven inflation.

Airline and travel stocks were among the worst performers. Shares in International Airlines Group (IAG) and Lufthansa fell sharply amid concerns over rising jet fuel prices and potential disruption to major air routes.

The European downturn followed a turbulent session in Asia, where Japan’s Nikkei 225 plunged more than 7pc. Although the United States is relatively more energy-independent than Europe, Wall Street futures signalled a weaker open as investors shifted towards traditional safe-haven assets such as gold and the US dollar.

Analysts say that while the immediate market reaction was triggered by physical disruptions to oil supply, attention is increasingly turning to the longer-term consequences for global supply chains. With higher energy costs acting as a financial strain on both households and industry, hopes for a swift economic rebound in the second half of 2026 are beginning to fade.