European stock markets traded lower on Monday, while oil prices surged, after renewed hostilities between Iran and Israel raised fears over the durability of a U.S.-brokered ceasefire and added fresh uncertainty to global markets.
By 03:03 ET (07:03 GMT), the pan-European Stoxx 600 had fallen 0.9%. Germany’s DAX dropped 1.3%, France’s CAC 40 declined 0.9%, and the FTSE 100 slipped 0.4%.
The latest escalation marked the first direct exchange of attacks between Iran and Israel since a fragile truce came into force in April.
According to media reports, the confrontation was triggered by an Israeli strike on Beirut, the Lebanese capital. Israel has continued to confront Iran-backed Hezbollah forces in Lebanon, although recent clashes had remained relatively contained. Tehran subsequently launched retaliatory attacks, prompting further Israeli military action targeting sites in central and western Iran.
Israel said on Monday that warning sirens had been activated in response to additional attacks originating from Iran. The country also reported intercepting a ballistic missile fired from Yemen, according to the Wall Street Journal. The newspaper also cited Iran’s Islamic Revolutionary Guard Corps as saying it had targeted airbases in southern Israel.
Despite the renewed violence, U.S. President Donald Trump said the developments would not derail Washington’s efforts to secure a broader peace agreement with Iran. However, an Iranian official told MS NOW that such a deal is “no longer feasible at this stage.”
Oil markets reacted sharply to the geopolitical developments. Brent crude, the international benchmark, rose 5.1% to $97.81 per barrel. Although prices remain below previous peaks above $100 per barrel, they are still significantly higher than levels seen before the conflict intensified.
The rise in energy prices has fuelled concerns that inflationary pressures could re-emerge, potentially prompting central banks, including the European Central Bank, to tighten monetary policy further.
Government bond yields across the eurozone climbed to multi-week highs, adding pressure to equity markets. Investors are now pricing in as many as three ECB interest rate increases before the end of the year. Bond yields move inversely to prices.
Beyond geopolitical risks, investors are also reassessing expectations surrounding the artificial intelligence sector. Sentiment weakened following disappointing quarterly results from chipmaker Broadcom (NASDAQ:AVGO) last week, raising questions about the sustainability of the AI-driven market rally.
A stronger-than-expected U.S. employment report released on Friday further reinforced expectations that the Federal Reserve could maintain a tighter policy stance into 2026.
European semiconductor stocks moved lower in early trading, reflecting weakness across technology shares in Asia and extending the decline seen on Wall Street at the end of last week.
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