European stocks plunge as oil prices near $120 mark

By Ahmet Taş | Wise News Press

LONDON, UK — European stock markets opened with significant losses on Monday, following a sharp sell-off in Asian markets as oil prices approached the $120 per barrel mark due to escalating tensions in the Middle East.

The rapid surge in energy costs has severely dampened investor risk appetite, raising fears that inflation could be reignited across the globe. The International Monetary Fund (IMF) has also issued a stark warning, noting that a prolonged conflict in the Middle East could have severe and lasting impacts on the global economy. This bearish sentiment in Europe was further compounded by weak industrial data emerging from Germany.

Asian and European indices turn red

The negative trend began in Asia, where Japan's benchmark Nikkei 225 index plummeted by more than 5%, and the Taiwanese stock market fell by 4.4%. The soaring oil prices have placed immense pressure on Asian economies, which are heavily dependent on energy imports.

This downward momentum quickly spread to Europe. By Monday morning, all major European indices were trading in the negative territory. London's FTSE 100 dropped by 1.6%, while Frankfurt's DAX, Paris's CAC 40, and Milan's FTSE MIB indices all recorded declines of over 2.4%. The Madrid IBEX 35 lost approximately 2.7% of its value, and the pan-European Stoxx 600 index fell by roughly 2%.

Adding to the market pressure, official data revealed that Germany's industrial production fell by 0.5% in January, following a 1% decline in the previous month. These weak factory orders and production numbers have strengthened expectations that the European Central Bank may raise interest rates this year to combat the looming threat of inflation.

The widening oil and gas crisis

The rapid acceleration in oil prices gained momentum over the weekend after parties involved in the Iran conflict began targeting new, critical infrastructure in the Persian Gulf. Early in the day, Brent crude reached as high as $119.50 per barrel before slightly retreating to settle around $107.80. Similarly, US crude, known as West Texas Intermediate (WTI), surged to $119.48 per barrel before trading near $103 as European markets opened.

Investment strategist Lindsay James noted that Iran supplies approximately 4% of the global oil output, with the vast majority of its exports directed to China. A prolonged disruption in Iran's export capacity could therefore have devastating effects on both the Chinese economy and global markets. According to reports from the Financial Times, some G7 nations are currently evaluating the release of strategic reserves to alleviate the immense pressure on oil markets.

The crisis has also spilled over into the natural gas sector. Disruptions to shipments passing through the Strait of Hormuz caused European natural gas futures to spike by more than 14% on Monday, exceeding 61 euros per megawatt-hour—a level approaching a three-year high. Tensions have been further exacerbated by the closure of the Ras Laffan liquefied natural gas facility in Qatar last week and the reality that gas storage levels in the European Union are currently below 30%.

IMF warns of lower growth and higher inflation

Speaking at an event in Tokyo, IMF Managing Director Kristalina Georgieva warned that if the conflict in the Middle East is prolonged, it will create significant pressure on growth, inflation, and broader market expectations.

Georgieva provided a stark projection regarding the potential economic fallout:

"A 10 percent increase in oil prices that persists throughout the year could increase global inflation by about 0.4 percentage points and reduce world economic growth by 0.1 to 0.2 percentage points."

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