European stocks sink as Iran conflict rattles trade and energy routes

Tuesday 03 March 2026 - 09:40

By: Dakir Madiha

European stocks sink as Iran conflict rattles trade and energy routes

European equities posted their steepest single day drop in months on Monday as investors reacted to the deepening military confrontation involving the United States, Israel, and Iran and its fallout for global trade and energy flows. The pan-European Stoxx 600 lost around 1.8 percent, while Germany’s DAX index slid more than 2.3 percent to a three week low near 24,697 points, with France’s CAC 40 down more than 1.4 percent and Spain’s IBEX 35 off over 2 percent. The sell off came after coordinated U.S. and Israeli strikes inside Iran over the weekend killed Supreme Leader Ayatollah Ali Khamenei and several senior officials, triggering Iranian missile attacks on Israeli cities and U.S. bases in the Gulf that left three American service members dead, according to U.S. media reports.

Airlines, tour operators, and travel related groups were among the worst hit sectors as carriers cut capacity across the Middle East and rerouted planes around closed or restricted airspace. Shares of Lufthansa and TUI were indicated to open nearly 12 percent lower, after the Lufthansa Group said it would halt passenger and cargo services to Tehran, Tel Aviv, Beirut, Amman, Dubai, and Abu Dhabi for several days, cancelling more than 3,400 flights in its biggest simultaneous withdrawal from the region since 2020. International Consolidated Airlines Group, the parent of British Airways and Iberia, fell more than 6 percent, while Air France KLM dropped close to 9 percent as investors priced in weaker demand, longer routes, and higher fuel costs.

Safe haven demand surged across commodities, with gold jumping as investors sought protection from mounting geopolitical risk and market volatility. Spot gold rose by about 2 percent to roughly 5,350 dollars per ounce, and U.S. gold futures advanced around 2.2 percent to 5,363 dollars, extending a recent run up driven by fears of a prolonged conflict and disruption to energy supplies.

The military escalation has also stalled commercial shipping through the Strait of Hormuz, the narrow maritime chokepoint at the mouth of the Gulf that handles roughly a fifth of the world’s traded crude oil and a major share of liquefied natural gas exports. Lloyd’s List data show that vessel transits through the strait slumped by 81 percent on March 1 compared with the previous Sunday, with only one crude tanker and no LNG carriers passing through as owners pulled back over war risk and insurance concerns. S&P Global and other industry monitors reported that tanker movements in the main shipping lanes had effectively come to a standstill, with around 240 ships clustered near the approaches to the waterway as operators wait for clarity on security guarantees and cover.

Oil markets reacted with an immediate price spike before retracing part of the gains, as traders assessed both the collapse in Hormuz traffic and the risk of wider supply outages across the Gulf. Brent crude futures initially jumped about 8 percent before settling closer to a 6 percent increase near 77.38 dollars a barrel, while major banks warned that a sustained closure of the strait could push prices much higher and feed a new global energy shock. Goldman Sachs told clients that the main way the Iran crisis could hit the broader world economy and asset markets is through its impact on energy prices and availability, echoing memories of earlier Gulf supply disruptions.

Germany’s export driven economy appears especially exposed to the combination of trade bottlenecks, costlier fuel, and financial market stress, given its dependence on industrial exports and energy intensive manufacturing. Shares in Deutsche Bank dropped around 4 percent and Siemens declined by a similar margin amid growing anxiety over supply chain interruptions and higher input costs for key sectors such as autos, chemicals, and machinery. President Donald Trump has said the military campaign against Iran could last up to four weeks if needed, raising the prospect of an extended hit to global shipping lanes, air travel, and investor confidence. Fortune reported that European gas futures were already trading about 25 percent higher, reviving comparisons with the energy price shock that followed Russia’s invasion of Ukraine and reinforcing concerns about inflation and growth in the euro area.