European stocks fell sharply Monday, starting the new week on a negative note as crude prices jumped higher, with the war in the Middle East impacting global oil supply.
Get more market updates with InvestingPro At 04:05 ET (08:05 GMT), the DAX index in Germany dropped 2.1%, the CAC 40 in France slipped 2.4% and the FTSE 100 in the U.K. fell 1.6%.
Crude soars as Middle East conflict escalates
The conflict in the Middle East has continued to escalate over the weekend, with the U.S. and Israel launching fresh waves of airstrikes across Iran, hitting multiple targets including oil depots.
At the same time, major Middle Eastern oil producers Kuwait, Iran and the UAE have cut oil production as tanker traffic through the Strait of Hormuz, a narrow passage which usually sees about a fifth of the world’s oil supply shipped through, has all but halted since the war started a week ago.
This has seen crude prices soar above $110 a barrel, climbing to levels not seen since Russia invaded Ukraine in 2022, with record level around $150 a barrel in sight if the conflict continues for a prolonged period of time.
Brent futures surged 15% to $106.55 a barrel and U.S. West Texas Intermediate crude futures rose 12% to $101.92 a barrel.
No end in sight
Oil had risen last week, but not as sharply as investors seemed pretty relaxed that the conflict would be relatively short-lived, and thus crude prices would slip back lower given the overall global oversupply.
However, Iran has since named Mojtaba Khamenei, the son of the assassinated Ayatollah Ali Khamenei, has been chosen as its new Supreme Leader on Sunday, according to numerous reports, suggesting that the country’s regime is not looking to back down at this point.
U.S. President Donald Trump has already made clear he considered Mojtaba Khamenei an “unacceptable” choice, which could mean further conflict ahead.
Trump also responded to the jump in crude prices by saying that short term rises were a "small price to pay" for removing Iran’s nuclear threat, as the jump in global energy prices is starting to impact gas prices on U.S. forecourts.
Global economic health worries
Away from matters of geopolitics, there are no major earnings scheduled for release in Europe Monday, in what has been a reasonably positive quarter.
In terms of economic data, German factory orders, released earlier Monday, slumped 11.1% in January, a sharper fall than the 4.2% expected and a significant drop from the 6.4% growth seen the previous month.
German industrial production also fell 0.5% on the month in January, after dropping 1.0% the prior month.
Concerns about the health of the global economy were raised late last week, as data showed that the U.S. economy unexpectedly lost jobs in February and the unemployment rate increased to 4.4%, potentially hinting at a deterioration in labor market conditions that could put the Federal Reserve in a difficult spot amid rising oil prices.
