European stock markets saw sharp declines Monday as oil prices surged to nearly $120 a barrel, dampening economic outlooks and fueling inflation fears. Major indices including London's FTSE 100, Frankfurt's DAX, and Paris's CAC 40 fell over 1.6% to 2.4%.
The conflict in the Middle East escalated over the weekend, impacting oil production and transport routes critical to global supply. While reports of G7 nations considering strategic oil reserve releases offered brief respite, oil prices remained volatile. Brent crude traded around $107.80 and West Texas Intermediate near $103 per barrel.
Analysts warn that disruptions to Iranian oil facilities, which account for roughly 4% of global supply, could pressure already tight energy markets and impact China's economic recovery. Tensions in the Persian Gulf also threaten shipping and energy infrastructure, unsettling global financial markets.
Gas prices in Europe jumped more than 14%, nearing three-year highs, as production cuts and Russia's potential halt of natural gas exports to Europe added to market anxiety. Europe's gas reserves remain critically low, below 30%.
International Monetary Fund Managing Director Kristalina Georgieva cautioned policymakers to "think of the unthinkable and prepare for it," noting that sustained oil price hikes could significantly impact global inflation and output.