European equity markets started Friday’s session in negative territory as crude prices held above $100 per barrel, even after the United States moved to allow some sanctioned Russian oil purchases in an effort to ease global supply pressures.
By 08:04 GMT, the pan-European Stoxx 600 index had declined 0.7%. Germany’s DAX was down 0.9%, France’s CAC 40 had dropped 1.0%, and the UK’s FTSE 100 was lower by 0.8%.
Markets in Europe followed a weak lead from Asia, where investors showed little confidence that the joint U.S.-Israeli military campaign against Iran will end quickly. Major stock indices in South Korea and Japan—both heavily reliant on Middle Eastern oil imports—fell by more than 1.4%.
Like many Asian economies, several European countries depend significantly on energy shipments passing through the Strait of Hormuz, a critical maritime corridor bordered on three sides by Iran.
Iran’s new Supreme Leader Mojtaba Khamenei stated on Thursday that the strait would remain closed until hostilities cease. Shipping traffic through the strategic chokepoint has nearly halted, as companies fear potential attacks that could put crews at risk. In addition, shipping operators are encountering growing difficulty securing insurance for voyages considered increasingly dangerous.
Even with recent measures by the United States and the International Energy Agency aimed at increasing oil availability, supply has remained limited, pushing Brent crude back above $100 per barrel. Price swings in Brent have been particularly sharp. Earlier in the week, the global benchmark surged close to $120 per barrel before briefly falling below $90.
Despite that volatility, crude prices remain significantly higher than before the conflict began, raising fears that renewed inflationary pressures could emerge globally and complicate expectations for central banks to begin easing monetary policy. In Europe, these concerns have driven government bond yields higher in countries such as Germany and France, adding pressure to equities.
“European and Asian equity markets have been hit harder than those of the U.S., and the longer the crisis goes on, the greater this divergence will become,” analysts at ING said in a note.
Inflation readings in focus
Against this backdrop, investors are analyzing new inflation figures from France and Spain.
In France, the euro area’s second-largest economy, consumer prices rose 1.1% year-on-year in February on a harmonized EU basis. The figure matched expectations and represented an acceleration from 0.4% in January. Spain reported a similar measure edging up slightly to 2.5%.
Later on Friday, markets will turn their attention to the release of the U.S. personal consumption expenditures price index for January, a key inflation indicator closely monitored by the Federal Reserve.
However, the data largely reflect a period before the outbreak of the Iran conflict, which began with a wave of U.S. and Israeli air strikes in late February. Since then, the inflation outlook has become more uncertain—particularly in Europe, where economists had previously suggested that price pressures were largely under control.
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