European stocks decline as U.S.-Iran war intensifies and oil rally resumes

European indices drop on renewed risk aversion

The pan-European Stoxx 600 index fell 0.7% in early Wednesday trade, reflecting broad-based risk aversion across regional equity markets. Germany's DAX dropped 1.1% to 23,703.93, while France's CAC 40 declined 0.6% to 8,008.87. In the UK, the FTSE 100 slipped 0.64% to 10,346.

The declines coincided with a renewed rally in oil prices, with Brent crude moving above $88 a barrel. Higher energy prices added to existing inflationary pressures across the eurozone, contributing to uncertainty around the economic outlook and monetary policy trajectory.

The current Iran conflict began on February 28, when the U.S. and Israel launched airstrikes on Iran, leading to significant disruption in global energy markets. The Strait of Hormuz — a critical chokepoint through which roughly 20% of global oil and gas passes — has been effectively blockaded, with Iran targeting ships attempting to transit the waterway.

Energy market disruption and sector performance

Tensions in the Strait of Hormuz intensified on Wednesday after three cargo ships were struck by projectiles off Iran's coast, according to the UK Maritime Trade Operations. On Tuesday, U.S. forces sank 16 Iranian minelayers near the strait, underscoring the growing risks to maritime logistics and energy supply routes.

In response to market volatility, the International Energy Agency proposed the largest ever release of oil from strategic reserves in an effort to stabilize prices. However, traders appeared to largely disregard the announcement, with oil prices continuing their upward trend.

Defense-related equities continued to outperform broader indices. Rheinmetall reported it expects sales growth of 40–45% in 2026 and stated it is in a “prime position” to arm the U.S. amid the war in Iran, highlighting robust demand expectations in the defense sector.

Mixed performance in Asian markets

Asian equity markets presented a mixed picture on Wednesday. Japan's Nikkei rose 1.43% to 55,025.37, supported by gains in local stocks, while Hong Kong's Hang Seng dipped 0.24% to 25,898.76. Taiwan's index posted a strong advance, surging 4.1% to 34,114.19, indicating divergent regional investor sentiment compared with Europe’s more risk-averse tone.

FAQ

Why did European stock markets open lower on Wednesday?
European markets fell as investors monitored the U.S.-Iran war and its impact on global energy supply, with rising oil prices and heightened geopolitical risk weighing on sentiment.

How is the Strait of Hormuz affecting energy markets?
The Strait of Hormuz has been effectively blockaded, with Iran targeting ships attempting to pass through it. As roughly 20% of global oil and gas flows through this route, the disruption has added significant uncertainty and contributed to higher oil prices.

What measures has the International Energy Agency proposed?
The International Energy Agency proposed the largest ever release of oil from strategic reserves to help stabilize markets, but traders appeared to largely disregard the move, and oil prices continued to rise.

Which sectors are outperforming amid the current tensions?
Defense stocks are outperforming, with Rheinmetall highlighting expected sales growth of 40–45% in 2026 and positioning itself to supply arms to the U.S. during the conflict in Iran.