European stock markets started the week on a weaker footing, as investors reacted to the collapse of weekend negotiations between the U.S. and Iran and renewed tensions following President Donald Trump’s warning of an “immediate” blockade of the Strait of Hormuz.
By 07:13 GMT, the pan-European Stoxx 600 index was down 0.8%. Germany’s DAX had fallen 1.2%, France’s CAC 40 declined 1.0%, and the UK’s FTSE 100 dropped 0.6%.
Trump said on Sunday that the U.S. would move to restrict vessels entering or leaving the Strait of Hormuz, a critical global shipping route that has become a focal point in the Middle East conflict. He cautioned that any ship paying a toll imposed by Tehran would not be guaranteed “safe passage on the high seas.”
Later, the Pentagon clarified that the restrictions would apply specifically to ships “entering or departing Iranian ports or coastal areas,” while other vessels would still be able to pass through the Strait. Around 20% of global oil supply flows through this narrow passage off Iran’s southern coast.
“[T]he language seemed to soften what the president posted,” analysts at Vital Knowledge said in a note to clients. “What initially looked like a complete halt to all traffic now looks like it is focused only on Iranian vessels.”
At the same time, The Wall Street Journal reported that Trump is considering limited military strikes against Iran, which analysts suggested may indicate that the administration could be “pivoting away aggressively from a resumption” of the broader bombing campaign that had been ongoing since late February.
These developments follow 21 hours of talks between U.S. and Iranian officials in Pakistan, which ended without securing a longer-term ceasefire beyond the current two-week pause in hostilities.
Market participants are now turning their attention to upcoming Eurozone inflation data later this week, which may shed light on how the conflict is influencing price pressures. Europe relies heavily on energy imports from the Persian Gulf, including natural gas from Qatar, where infrastructure has been affected by the expanding conflict.
The European Central Bank has indicated it is closely monitoring inflation risks linked to the situation. Interest rate futures currently suggest expectations of around three 25-basis-point rate increases by the ECB through the end of 2026, according to LSEG data cited by Reuters.
Oil markets reacted strongly, with Brent crude climbing back above $100 per barrel after briefly falling below that level last week following the announcement of a temporary ceasefire.
In corporate news, shares of Kering SA (EU:KER) resumed trading after being briefly halted following a drop of more than 3% in early dealings. Morgan Stanley downgraded the stock to “equal weight” from “overweight,” noting that much of the expected turnaround appears already reflected in the share price.
Elsewhere, travel and leisure stocks across Europe were under pressure, while Italian energy company Eni (BIT:ENI) and defence group Leonardo (BIT:LDO) both posted gains.
