European stock markets declined sharply on Monday as investors reacted to renewed military confrontation in the Middle East. At 03:05 ET (08:05 GMT), Germany's DAX was down 2.5%, France's CAC 40 had slipped 2.1% and the U.K.'s FTSE 100 had fallen 0.8%.
The drop in risk appetite was felt across global markets after the United States and Israel carried out wide-ranging attacks on Iran over the weekend, an escalation that reportedly killed several top officials, including Supreme Leader Ayatollah Ali Khamenei. Iran struck back with attacks across several Middle Eastern states and against U.S. bases in the region.
U.S. President Donald Trump warned overnight that U.S. and Israeli military operations would continue and suggested the campaign could last several weeks. Iran's top security official Ali Larijani hardened Tehran's stance in a post on X on Monday, saying, "We will not negotiate with the United States," a position that followed late-week discussions in which Iran had reportedly explored the possibility of a nuclear deal with Washington.
Markets had been riding a long run of gains prior to the weekend's events. Equities closed at a record high on Friday and extended a run that marked eight consecutive months of gains for some benchmarks. The pan-European STOXX 600 had just completed its longest monthly winning streak since 2012-2013.
With quarterly earnings season winding down, a handful of corporate updates were still in investors' hands on Monday, but the overall market tone shifted sharply toward risk-off.
- Smith & Nephew (SN) reported a 15.5% rise in annual profit, with the British medical products maker citing progress on its turnaround plans that delivered cost savings and improved growth across divisions.
- Bunzl (BNZL) recorded a 9.8% decline in annual adjusted pretax profit, attributing the fall to weaker trading conditions in its key North American business supplies division and tariff-related disruptions to its supply chain.
- Galp Energia (GALP) said it delivered a strong operational performance in 2025, benefiting from robust cash generation and a solid balance sheet despite an environment of weaker oil prices.
On the economic front, German retail sales dropped more than economists had expected in January, falling 0.9% from the prior month against a consensus forecast for a 0.2% fall. In the U.K., Nationwide Building Society reported that British house prices rose 0.3% in February, leaving them 1.0% higher than a year earlier.
Later in the session, markets were set to receive the final reading of the Eurozone manufacturing PMI for February, which was expected to confirm that the sector had moved back into expansionary territory in the month.
Energy markets reacted strongly to the surge in regional tensions. Brent crude futures jumped 9.6% to $79.85 a barrel, marking a peak not seen since January 2025. U.S. West Texas Intermediate crude rose 9.3% to $73.22 a barrel, reaching its highest level since June.
The sharp rise in oil prices followed reports that three tankers were damaged while transiting the Strait of Hormuz, a vital maritime chokepoint that links the Gulf with the Arabian Sea. Normally, vessels carrying oil equal to roughly one-fifth of global demand from Saudi Arabia, the UAE, Iraq, Iran and Kuwait pass through the Strait each day.
Market participants noted that a prolonged effective closure of the Strait would likely push oil prices still higher and create supply shortages for major importers such as China and India.
In sum, the combination of renewed military activity in the Middle East, concerns about further escalation and disrupted shipping through a critical oil artery pushed investors toward safer assets and sent energy prices up sharply, while corporate news and mixed economic data provided a further layer of uncertainty for markets heading into the rest of the week.