European stock markets retreated as rising oil prices driven by tensions in the Strait of Hormuz and U.S. President Donald Trump's threat to increase tariffs on European car imports weighed on sentiment, particularly in the automotive sector.

The Euro Stoxx 50 index fell by 2%, while the Stoxx Europe 600 index closed 1% lower. In the final 30 minutes of trading, indices extended losses after the United Arab Emirates reported detecting missiles launched from Iran heading toward its territory. London's market was closed for a holiday.

After a strong start to the year, European equities are now trailing behind Asian and U.S. markets, which have been buoyed by optimism surrounding artificial intelligence. However, bullish investors continue to point to relatively solid corporate earnings.

David Kruk, Head of Trading at La Financiere de l’Echiquier, commented, "I view this as another pullback, and investors may look to buy on dips over the next three days."

Following Trump's statement that the European Union has not fully complied with its trade agreement with the United States, BMW led the declines, falling 2.4%. Mercedes-Benz Group dropped 3.3%, and Volkswagen declined 2.8%.