European Markets Plunge as Iran Conflict Escalates

European stock markets opened sharply lower on Monday, March 2, 2026, reacting to the escalating conflict between Iran and the United States and Israel. The attacks, which resulted in the death of Iran’s Supreme Leader Ayatollah Ali Khamenei, have triggered fears of wider regional instability and a potential disruption to global energy supplies.

Market Overview

The pan-European Stoxx 600 index was down 1.8% shortly after 8:30 a.m. In London (3:00 a.m. ET), with most major bourses and sectors in retreat. CNBC reported that all sectors except oil and gas were experiencing declines.

The STOXX Europe 600 was down 1.76% in early trading, while the U.K.’s FTSE 100 was down 0.63% before lunch, according to Fortune. Japan’s Nikkei 225 closed down 1.35% and South Korea’s KOSPI was down 1%.

Sector Performance

Oil and Gas Gains

Norwegian oil and gas exporters Vår Energi and Equinor led the Stoxx 600, gaining more than 9% each as concerns over global energy supplies grew. Crude oil prices jumped more than 8% on Sunday, reflecting market fears of a major supply disruption.

Defense Stocks Rise

European defense stocks also saw significant gains. Italian aerospace company Avio rose 8.4%, while the U.K.’s BAE Systems increased by 6.8%. Swedish fighter jet maker Saab gained almost 7%, and Italy’s Leonardo and Germany’s Renk each rose more than 6%. BAE Systems was also up more than 6% on the U.K. Market and Germany’s Rheinmetall AG was up 2% prior to lunch.

Travel and Tourism Declines

Companies in the travel and tourism sector experienced substantial losses. Carnival PLC, the Anglo-American cruise line operator, shed 7.6%, while International Consolidated Airlines tumbled 7.3%. TUI AG dropped more than 6.7%, and Lufthansa lost 6.3%.

Geopolitical Context

The market downturn follows widespread U.S. And Israeli attacks on Iran over the weekend, resulting in the death of Ayatollah Ali Khamenei. Iran has responded with retaliatory missile strikes against U.S. Bases in the Middle East, resulting in the deaths of three U.S. Service members. The U.S. And Israel are urging Iranian citizens to overthrow the current regime.

Looking Ahead

The situation remains highly volatile, and further market fluctuations are expected as the conflict unfolds. Investors are closely monitoring developments in the Middle East and assessing the potential for further escalation. Concerns remain about the potential closure of the Strait of Hormuz, which could disrupt 15% of global oil supply and 20% of global liquid natural gas supply, potentially driving oil prices above $100 per barrel.