European stock markets closed lower in volatile trading on Monday, as traders grappled with a series of reports indicating a worsening conflict in the Middle East.

The Stoxx Europe 600 index gave up gains of as much as 0.5% to finish the session 0.3% lower. Brent crude oil traded around $88 a barrel, having risen nearly 4% at one point.

Shipping through the Strait of Hormuz has nearly stalled due to Iranian attacks on tankers and escalating U.S. airstrikes. Threats of a maritime blockade of Saudi Arabia by the Iran-backed Houthi rebels in Yemen risk cutting off an alternative oil export route via the Red Sea.

In the UK, the domestically-focused FTSE 250 index fell 0.3% under pressure, after new Prime Minister Andy Burnham stated he would consider using the "flexibility" within the UK's current fiscal rules to fund his budget plans. Sterling reversed early gains, falling roughly 0.3% against the U.S. dollar.

Earnings remained a key focus. Ryanair shares fell 4.5% as the airline's results were hit by high fuel prices and lower fares. Meanwhile, shares of Lagercrantz Group rose 3% after several analysts upgraded the industrial group, citing improving demand and a strong order book.

Investor optimism around the earnings season has strengthened. The reporting period has started well, with companies posting profit growth close to 12%, largely in line with expectations.

Andrea Gabellone, Global Head of Equities at KBC Securities, noted that many sell-side analysts are becoming increasingly optimistic.

"However, we believe significant uncertainty remains due to weak growth, energy dependency, costs, and intensifying competition not yet reflected in earnings expectations," he added.