European shares opened lower on Monday, surrendering some of last week’s relief gains as hopes for a swift end to the Iran conflict faded following the collapse of U.S.-Iran negotiations and President Trump’s surprise order to blockade the Strait of Hormuz.
The pan-European STOXX 600 index slipped 0.7% to 610.52 points by 0834 GMT. Although the decline was less severe than early futures had indicated, it underscored a return of caution among investors. The benchmark still sits comfortably above its mid-March troughs but has pulled back from the optimistic surge seen after the April 7 ceasefire announcement.
Germany’s DAX fell 1%, while London’s FTSE 100 eased a more modest 0.4%. The moves reflected a broad reassessment of risk as the Middle East situation deteriorated once again.
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Trump’s announcement on Sunday dramatically raised the stakes. He directed the U.S. Navy to prevent all vessels from entering or leaving the strait, and to interdict any ships that had paid tolls to Iran. Washington, therefore, has effectively tightened the noose on Tehran’s oil exports while sending a clear message that it will not tolerate Iranian attempts to profit from the waterway during hostilities.
Oil prices promptly climbed above $100 a barrel, reviving inflation fears that had only recently started to recede. The energy shock comes at a delicate moment for the global economy, already battered by the after-effects of the pandemic, Russia’s war in Ukraine, and sweeping U.S. tariffs.
“At the start of this week, traders are partly reversing last week’s moves, but they are not back to panic levels, and some may argue that the sell-off could have been worse,” noted Kathleen Brooks, research director at XTB.
Last week’s 3% rally in the STOXX 600 had been built on expectations that the temporary ceasefire might lead to a lasting de-escalation and the reopening of the strait. Instead, Vice President JD Vance’s talks in Pakistan produced no agreement, with the key impasse centering on Iran’s unwillingness to provide firm assurances against pursuing a nuclear weapon.
Sector performance told a familiar story under these conditions. Energy stocks (.SXEP) bucked the trend, rising 0.9% as higher crude prices lifted prospects for oil majors. Everywhere else, however, the tone was negative. Travel and leisure shares (.SXTP) led the declines with a 2% drop, reflecting worries over disrupted tourism and business travel in the region. Banks (.SX7E) and industrials (.SXNP) shed 1.3% and 1.2% respectively, while luxury goods stocks (.STXLUXP) fell 1.8%.
The luxury sector has been particularly stung by shrinking sales in Dubai and Abu Dhabi, once its fastest-growing market, as wealthy visitors stay away amid the uncertainty.
Beyond the immediate market reaction, the blockade is forcing a rapid reassessment of monetary policy expectations. Investors are now pricing in nearly three 25-basis-point rate hikes by the European Central Bank by year-end, a sharp reversal from the dovish bets that dominated before the conflict intensified. Persistent energy costs are complicating the ECB’s task of steering the euro zone economy, raising the specter of stagflationary pressures.
Among individual bright spots, British fintech Wise climbed 4.3% after reporting a robust 26% increase in cross-border transaction volumes for the fourth quarter and reaffirming that its full-year profit margins should land near the top of its guidance range.
As European trading progressed, focus began shifting across the Atlantic to the start of the U.S. earnings season, with Goldman Sachs scheduled to report later Monday. How corporate America navigates the combination of elevated oil prices, geopolitical uncertainty, and tighter financial conditions will likely set the tone for global markets in the coming days.
For European investors, the message from Monday’s session was that the failure of recent diplomacy, coupled with the U.S. decision to enforce a blockade, has introduced fresh risks to energy supplies, global trade flows, and inflation trajectories.