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European stocks dropped sharply on Monday, hitting their lowest level in more than two months as surging oil prices and escalating conflict in the Middle East intensified fears of rising inflation and economic uncertainty.
The pan-European benchmark index declined 2.34% to 585.08 points by 08:10 GMT, marking its third consecutive session of losses. The index had already fallen 5.5% last week, recording its worst weekly performance in nearly a year.
Oil surge weighs on sentiment
Investor sentiment was heavily pressured by a sharp rally in oil prices, which surged more than 25% to nearly $120 per barrel as markets reacted to fears of prolonged supply disruptions.
The spike in energy prices comes amid an expanding conflict between the United States, Israel, and Iran, which has raised concerns about disruptions to shipping routes and energy infrastructure in the Middle East.
The situation intensified after Iran appointed Mojtaba Khamenei as the new Supreme Leader, succeeding his father Ali Khamenei, signaling that hardline leadership remains firmly in control in Tehran.
Banks and tech stocks lead declines
Banking stocks, which were already at the center of last week’s sell-off, continued to slide, with the sector falling 3.2%.
Technology shares also came under pressure, dropping 3.1% as investors reduced exposure to growth-sensitive sectors.
Airline stocks were among the worst performers, as higher fuel costs weighed on the industry.
- Lufthansa fell 3.9%
- Air France-KLM dropped 5.2%
Energy and defense stocks buck the trend
In contrast, rising crude prices provided some support to the energy sector, which edged 0.1% higher.
Defense stocks also saw gains, with Italian defense company Leonardo rising 1.4%, reflecting expectations of increased military spending amid escalating geopolitical tensions.
ECB comments and economic data in focus
Investors are now turning their attention to remarks expected later in the day from European Central Bank President Christine Lagarde, along with comments from ECB board member Piero Cipollone and eurozone finance ministers during a Eurogroup meeting.
Meanwhile, economic data released earlier showed that German industrial orders declined more than expected in January, adding to concerns about slowing economic momentum in Europe.
With oil prices surging and geopolitical tensions escalating, European markets remain under pressure as investors weigh the risks of higher inflation and weaker growth in the months ahead.
