European markets fall as oil and gas prices rise
European stock markets started the week with strong losses as oil prices surged and the crisis in the Middle East continued to worsen. The fall in European markets followed a sharp decline in Asian markets, which also reacted to rising energy prices and growing uncertainty about the global economy.
On Monday morning, most major European stock indexes were trading lower. Investor confidence was already weak after heavy losses in Asia. Japan’s main stock index, the Nikkei 225, dropped by more than 5%, while Taiwan’s benchmark index fell by about 4.4%.
Other Asian markets also declined as oil prices climbed close to $120 per barrel. The sharp rise in energy prices has raised concerns for countries that rely heavily on imported oil and gas. Higher energy costs can increase inflation and slow economic growth.
In Europe, major stock indexes also saw significant declines. London’s FTSE 100 fell by about 1.6%. Germany’s DAX, France’s CAC 40, and Italy’s FTSE MIB each dropped by more than 2.4% by 09:30 CET. Spain’s IBEX 35 declined by nearly 2.7%, while the pan-European Stoxx 600 index fell around 2%.
Rising oil and gas prices are creating serious concerns about Europe’s economic outlook this year. The situation was made worse by disappointing economic data from Germany, Europe’s largest economy.
According to official statistics released on Monday, German industrial production and factory orders both declined at the beginning of the year. Industrial output fell by 0.5% in January after dropping by a revised 1% in December. These numbers suggest that the country’s manufacturing sector is still struggling.
At the same time, investors are increasingly expecting the European Central Bank (ECB) to raise interest rates this year. Higher energy prices are pushing inflation upward, which could force central banks to tighten monetary policy. If interest rates rise, borrowing becomes more expensive for businesses and consumers, which could slow economic activity.
The sharp movements in global markets were largely driven by developments in the oil market.
Oil prices surge
Oil prices rose sharply over the weekend as the conflict involving Iran intensified. Both sides carried out new attacks, including strikes that targeted civilian infrastructure. The conflict has now entered its second week and involves areas that are extremely important for global oil and gas production and transportation, especially around the Persian Gulf.
The rapid increase in oil prices has made investors nervous because any disruption to supplies from the region could affect global energy markets.
However, prices eased slightly after reports suggested that some members of the Group of Seven (G7) were considering releasing oil from their strategic reserves. According to a report by the Financial Times, officials were discussing this option as a way to calm markets and increase supply. The report was based on unnamed sources and has not yet been officially confirmed.
Earlier in the day, oil prices briefly surged close to $120 per barrel before falling back as trading continued.
Brent crude, which is the international benchmark for oil prices, rose to around $119.50 per barrel in early trading. Later, it dropped to about $107.80.
Meanwhile, West Texas Intermediate (WTI), the main benchmark used in the United States, also spiked to $119.48 per barrel. By the time European markets opened, the price had fallen back to around $103.
Analysts say that attacks on Iran’s oil facilities could increase pressure on an already tight global energy market. Iran is an important oil producer and plays a significant role in global supply.
Lindsay James, an investment strategist at Quilter, explained that Iran produces roughly 4% of the world’s oil supply. She also noted that about 90% of Iran’s oil exports are sent to China.
China, the world’s second-largest economy, has large oil reserves. However, experts say that if Iran’s export capacity is damaged for a long time, it could affect China’s economic recovery and eventually influence global markets.
James also warned that attacks on shipping routes and energy infrastructure in the Persian Gulf could increase tensions even further. Many investors had initially expected the conflict to end quickly, but the situation now appears more uncertain.
Gas prices jump in Europe
The conflict is also affecting the natural gas market, especially in Europe. After disruptions in shipping through the Strait of Hormuz, European gas prices increased sharply.
Natural gas futures jumped more than 14% on Monday, rising above €61 per megawatt-hour. This is close to the highest level seen in nearly three years. The increase also follows a dramatic surge of about 67% last week.
Several major energy producers in the region have reduced their output because of the conflict. In addition, Qatar’s Ras Laffan facility — the world’s largest liquefied natural gas (LNG) plant — was shut down last week, further tightening global supply.
Adding to the uncertainty, Russia has warned that it could stop natural gas exports to Europe. This possibility has increased anxiety in energy markets.
Europe is also facing another challenge: its gas reserves are currently low. Storage levels across the European Union are below 30%, meaning countries will need to refill their reserves in the coming months to prepare for future demand.
Currency and other markets
Financial markets also saw movements in currencies and other assets. The US dollar, which is often considered a safe-haven currency during times of uncertainty, strengthened against several major currencies.
On Monday morning, the dollar was trading at 158.46 Japanese yen, slightly higher than 158.09 late on Friday. The euro rose slightly as well, reaching $1.1558 compared with $1.1556 previously.
Gold prices, which also tend to attract investors during uncertain times, fell by more than 1% in early European trading and were around $5,100.
Cryptocurrencies moved in the opposite direction. Bitcoin rose about 0.7%, with one coin trading at around $67,774.
IMF warns about possible global impact
As concerns grow about how long the conflict might last, global economic leaders are urging policymakers to prepare for possible risks.
Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), warned that governments and central banks must be ready for unexpected economic shocks.
Speaking at a symposium in Tokyo on Monday, Georgieva said that if the conflict continues for a long time, it could significantly affect global markets, economic growth, and inflation.
She explained that rising oil prices can quickly impact the global economy. According to IMF estimates, if oil prices increase by 10% and stay high for most of the year, global inflation could rise by about 0.4 percentage points. At the same time, global economic output could fall by around 0.1% to 0.2%.
Georgieva also reminded policymakers that even if the current conflict ends soon, other unexpected events could still occur in the future.
In the current uncertain global environment, she advised leaders to prepare for difficult scenarios.
Her message to policymakers was clear: they should always be ready for unexpected challenges and plan ahead for potential economic shocks.
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