European stocks record first consecutive weekly drop of 2026 amid Iran war

Saturday 14 March 2026 - 07:20

By: Dakir Madiha

European stocks record first consecutive weekly drop of 2026 amid Iran war

European equity markets posted their first back to back weekly decline of the year as the military confrontation involving Iran pushed oil prices higher and deepened economic uncertainty across the region. While energy producers and utilities gained from the surge in crude prices, banks, airlines, and industrial companies faced mounting pressure from rising costs and geopolitical risks.

The Stoxx Europe 600 index closed lower on Friday, marking its second consecutive weekly loss and the first two week decline of 2026. Oil prices climbed above 100 dollars per barrel, prompting traders to reduce exposure to risk ahead of the weekend. Energy and utility stocks rose more than 1 percent during the session, while energy intensive sectors such as mining and heavy industry lagged behind.

The divergence was especially visible within Spain’s IBEX 35 index. Repsol, the Spanish oil major, benefited from a double upgrade by RBC Capital, which raised the stock to an outperform rating and set a new price target of 25 euros. The bank argued that refining disruptions in the Middle East could keep profit margins elevated throughout 2026. Since the conflict began on February 28, Repsol has been one of the few positive performers within the benchmark.

Airlines and industrial companies moved in the opposite direction. IAG, the parent company of British Airways and Iberia, dropped more than 6 percent in the early phase of the conflict as investors worried about potential airspace closures and sharply higher jet fuel costs. Steel producer ArcelorMittal also declined as rising energy expenses squeezed margins across the heavy industry sector.

Banks also came under significant pressure. The IBEX 35 has a heavy weighting in financial institutions, making it particularly vulnerable to shifts in investor sentiment. Shares of Banco Santander fell more than 12 percent during the first week of the conflict. The decline was intensified by political tensions after US President Donald Trump threatened to cut trade ties with Spain when Madrid refused to allow US forces to use Spanish bases for strikes against Iran.

Other lenders including BBVA and CaixaBank also weakened, with the broader banking sector initially dropping more than 7 percent before recovering part of the losses. Spanish banks have begun advising institutional clients to wind down active operations in the Persian Gulf while the conflict continues.

During the first week of the war, the IBEX 35 recorded its worst weekly performance since March 2022, falling roughly 7 percent. Investor sentiment in the eurozone also deteriorated. The Sentix index dropped to minus 3.1 in March from 4.2 in the previous month, ending a three month run of improving confidence.

Analysts say the trajectory of oil prices will remain the key factor shaping the market outlook. Goldman Sachs noted that the main transmission channel from the Iran crisis to the global economy is through energy markets, with both the scale and duration of the disruption determining the economic impact.

Crude prices have risen by about 40 percent since the conflict began. Iranian attacks on cargo vessels and the effective closure of the Strait of Hormuz have disrupted roughly 20 percent of global oil transit.

Market strategists remain divided on how long the sector divergence may last. Some analysts, including those at Bankinter, argue that the impact on European markets could remain limited if the conflict is resolved quickly. However, with President Trump indicating that military operations may continue for weeks and Iran showing no sign of retreat, the gap between energy winners and oil dependent sectors in Europe could widen further.