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European equities rallied sharply on Wednesday, while oil prices fell below the $100-per-barrel mark, after Donald Trump signaled that the United States could soon exit the ongoing conflict with Iran.
By 03:17 ET (07:17 GMT), the pan-European STOXX 600 jumped 2.3%, with Germany’s DAX surging 2.8%. France’s CAC 40 gained 2.2%, while the UK’s FTSE 100 rose 1.8%, reflecting a broad-based risk-on move across regional markets.
De-Escalation Hopes Drive Equity Rally
Investor sentiment improved significantly after Trump stated that the U.S. would be “leaving very soon,” suggesting a potential withdrawal within two to three weeks. He added that Washington’s objective of neutralizing Iran’s nuclear threat had been achieved and that a formal agreement was not necessary to conclude the conflict.
The remarks followed comments from U.S. Defense Secretary Pete Hegseth, who indicated that the coming days of fighting could prove decisive, further reinforcing expectations that the conflict may be nearing a turning point.
The prospect of reduced geopolitical risk provided a strong boost to equities, particularly after weeks of market volatility driven by escalating tensions in the Middle East.
Oil Prices Slide as Risk Premium Eases
Energy markets reacted sharply to the potential shift in U.S. strategy. Brent crude futures for June delivery fell 5.0% to $98.81 per barrel, dropping below the $100 threshold after previously reaching levels near $120 during the peak of the conflict.
The decline reflects a partial unwinding of the geopolitical risk premium that had built up in oil markets, as traders reassessed the likelihood of prolonged supply disruptions.
Despite the pullback, oil prices remain elevated compared to pre-conflict levels of around $70 per barrel, indicating that supply concerns have not fully dissipated.
Hormuz Tensions Still in Focus
The Strait of Hormuz remains a central issue for markets. The critical waterway, which handles roughly one-fifth of global oil supply, has been effectively closed for weeks due to Iranian threats and attacks on tanker traffic.
Reports suggest that the United Arab Emirates is preparing to support efforts to reopen the strait, potentially through coordinated action with allies. Discussions at the United Nations Security Council may include proposals to authorize such measures.
However, Trump has not provided a detailed plan for reopening the route, instead urging allies to take responsibility for securing the passage.
Inflation and Policy Outlook
The surge in oil prices over recent weeks has fueled concerns about rising inflation globally, increasing the likelihood that central banks may consider interest rate hikes. This has contributed to higher government bond yields, which had weighed on equity markets earlier in the month.
However, a recent decline in bond yields in major economies, including the United States and Germany, suggests some easing in market anxiety as de-escalation prospects improve.
The STOXX 600, which had fallen more than 10% from its peak during the height of the crisis, is now rebounding after recording its worst monthly performance since mid-2022.
Market Outlook
European markets are responding positively to signs of a potential U.S. withdrawal from the conflict, but uncertainty remains around the durability of any de-escalation and the future of key energy routes.
Investors will continue to monitor geopolitical developments closely, with oil prices, inflation expectations, and central bank policy likely to remain key drivers of market direction in the near term.
