European equities began Friday trading in positive territory, reversing losses recorded on Thursday as traders digested signs of moderating oil prices against the backdrop of an intensifying conflict in the Middle East.
By 04:00 ET (08:00 GMT), the pan-European Stoxx 600 was up 0.7%. Germany's Dax had climbed 1.0%, France's CAC 40 rose 0.8% and the U.K.'s FTSE 100 advanced 0.4%.
Those gains followed a steep downturn on Thursday, when continental shares slid to their weakest levels since December. The prior session's rout was driven in large part by a sharp spike in natural gas prices after an escalation of attacks on energy infrastructure across the Middle East earlier in the week.
Market attention centered on an attack that the U.S. said Israel carried out on South Pars, the Iranian portion of the world's largest natural gas field. Tehran subsequently launched strikes on several gas-production sites across the region, including a key facility in Qatar.
Europe's exposure to Qatari gas imports was one of the factors heightening investor concern, as disruptions or a broader spread of fighting could tighten supply to the continent. Dutch TTF natural gas futures, the European benchmark, surged by roughly 25% at one point before trimming some of that advance.
The European Central Bank signalled that a prolonged confrontation between Iran and the joint U.S.-Israeli forces could feed upward pressure into inflation. ECB policymakers left interest rates unchanged, aligning with similar pauses by other central banks, but they raised their inflation forecast for 2026 substantially, citing the projected impact of the Iran conflict.
Analysts at Capital Economics noted that the prospect of renewed inflationary pressure could prompt the ECB to consider future rate increases in the coming months. At the same time, expectations for when the U.S. Federal Reserve might begin cutting rates have been delayed as the United States confronts economic fallout from the assault on Iran.
In a bid to steady markets, U.S. President Donald Trump on Thursday pledged to take necessary action to help calm the situation and sought to reassure Americans, saying "it will be over with soon."
Amid the risk-off dynamics, investors gravitated toward the U.S. dollar. The move into the dollar reduced the relative appeal of non-yielding gold, even though bullion is typically sought as a safe-haven asset during geopolitical crises. The pullback in gold prices weighed on European mining stocks, with the sector falling 4.2% on Thursday.
Market context and implications
The trading session illustrates how energy security concerns and geopolitical developments can quickly shift market sentiment across equities, commodities and rates. Natural gas price volatility, central-bank inflation forecasts and shifts in rate expectations are central to the current market narrative.
As investors process both the potential for supply disruption in European gas markets and central-bank responses to any resulting inflation impulse, market participants will be watching price action in energy benchmarks and policy language from major central banks closely.
Summary
European stocks opened higher on Friday, partially reversing Thursday's sell-off sparked by surging natural gas prices after attacks on energy infrastructure in the Middle East. Key indices reported modest gains by early trading. The situation remains fluid as gas-price moves, ECB inflation projections and delayed Fed rate-cut expectations continue to shape investor decisions. U.S. political reassurances sought to temper market stress, while flows into the U.S. dollar reduced demand for gold and pressured miners.