By Joe Stonor

European stock markets slid and were on track for their worst day's performance since the selloff following President Trump's "Liberation Day" tariff announcement last year.

The Europe-wide Stoxx 600 index fell 3.2% in early afternoon trade, putting the index on pace for its worst one-day drop since April, as conflict in the Middle East reverberates across markets.

Blue-chip indexes in London and Paris slid 2.9% and 3.3%, respectively, while Germany's DAX index dropped 3.9%, wiping out three months of gains.

Spain's IBEX 35 and the Italian FTSE MIB were down 4.8% and 4.4%, respectively.

Falls in European indexes deepened as the price of oil and gas rose throughout the day. Iranian air strikes caused severe damage to energy infrastructure across the Middle East, compounding the impact of the effective closure of the Strait of Hormuz.

Crude oil climbed above $84 a barrel, while European natural gas prices surged close to 40%.

"Continental Europe is very, very vulnerable to the spike in energy prices--if it continues," Citi analyst Beata Manthey said.

Energy-intensive sectors like manufacturing and chemicals fell, with major German conglomerates Siemens and Bayer down 5.1% and 4.7%, respectively. In Spain, steel maker Acerinox tumbled 9.4%.

Companies with more direct exposure to events in the Middle East fell, too. British Airways owner International Consolidated Airlines Group was down by 14% since its Friday close, while French hotel group Accor fell 6% Tuesday after dropping by close to 9% Monday.

A basket of banking stocks fell 5.5%. Santander dropped 7.4% in Madrid, while Italian lender Unicredit was down 6%. Insurers were hit hard, too, with Zurich Insurance falling 6.4% amid concerns of a spike in war-related payouts.

European semiconductor-related companies were also caught up in the selling. Dutch chip-equipment maker ASML--the most valuable company in Europe--fell 3.7%, having slipped as much as 5.5% earlier. A fall of 4% in the company's share price would wipe almost $22 billion off its market value.

A major problem for investors is uncertainty over how long the conflict will last, analysts said. President Trump said in an address on Monday that he expected the conflict to last four or five weeks, but that it could go on longer.

"When uncertainty lingers, the recovery phase is often delayed. This pattern was evident during the Iraq War in 2003 and the onset of Russia's full-scale invasion of Ukraine in 2022," analysts at Morgan Stanley wrote.

Europe's sensitivity to energy costs means natural-gas prices will have a big say in determining whether stocks rebound, said Craig Cameron, a portfolio manager at Franklin Templeton.

"If gas prices remain elevated, it's an economic dampener on Europe, and it probably casts some doubt on Europe's ability to generate growth over the next two or three years," he said.

The leap in gas prices Tuesday reached levels that "would have a meaningful impact on European GDP" and could threaten a market narrative that saw European equities outperforming their U.S. peers this year, Cameron added.

Despite the heavy selling, European equities might still be boosted by an uptick in continental government spending, Cameron said. In any case, the falls are worth putting in context.

"We've given up a month of gains in a couple of days, but we're still fairly close to all-time highs in Europe," Cameron said. "We're not in disaster territory yet."

Write to Joe Stonor at josephmichael.stonor@wsj.com

(END) Dow Jones Newswires

March 03, 2026 10:05 ET (15:05 GMT)

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