Stocks falls and energy prices rise as Iran crisis escalates

Global markets reel amid Middle East turmoil. The benchmark European gas price surged almost 50 per cent, sparking fears of broader economic instability

Tom Howard & Martin Strydom

Monday March 02 2026, 3:17pm GMT, The Times

Economics

Clashes in the Middle East between the US and Iran roiled financial markets on Monday, sending prices of oil and gas sharply higher while the FTSE 100 fell.

Amid fears that oil and gas supplies from the Middle East will be disrupted by the conflict there, energy prices jumped. The benchmark European gas price rose almost 50 per cent to €48 per megawatt hour on Monday and the price of a barrel of Brent crude oil gained as much as 13 per cent.

Oil prices eased as the day wore on, ending about 9 per cent higher than where they began at just over $82 a barrel. That is the highest price seen since January 2025, but not as high as some analysts had feared over the weekend.

“The risk that diplomacy between the US and Iran would fail was already being factored in by the market,” James Hosie, an oil industry analyst at Shore Capital, said.

Using a similar playbook to when Russia first invaded Ukraine four years ago, traders responded to the killing of the supreme leader of the Islamic Republic of Iran on Friday by moving their money into “safe havens”.

The US dollar, a popular investment in times of uncertainty, strengthened against most major currencies, with the pound declining 0.8 per cent to $1.338 and the euro shedding more than 1 per cent to $1.169. The Swiss franc was also in demand.

The price of gold rose 2 per cent to break back above $5,400 an ounce, although it retreated in the afternoon to just shy of $5,300 an ounce — broadly where it began the day — and remains well shy of the record of $5,594.82 reached on January 29.

Government bond markets were routed as concerns grew that, should oil and gas prices remain elevated, then higher inflation, particularly in Europe, would likely deter central banks from cutting interest rates further.

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Rob Wood, chief UK economist at Pantheon Macroeconomics, said an oil price spike of 10 to 15 per cent would boost inflation by about 10 basis points, but the “big deal” for the UK inflation outlook and the policymakers on the monetary policy committee (MPC) was gas prices.

“I doubt the MPC have seen enough so far to stop a March or April rate cut, and there is still time before the MPC have to make that decision, but the possibility of a cut being delayed until April when the MPC may have more clarity has risen,” he said.

“A protracted spike in oil and gas prices would make the MPC more cautious for this year and likely prevent a second rate cut, but for now markets seem to be treating events in the Middle East as likely having only a temporary effect on prices.”

Traders are pricing in a 74 per cent chance that the Bank of England will cut rates later this month, down from about 78 per cent last week.

Reflecting that possibility of fewer near-term rate cuts, investors dumped government bonds, pushing up bond yields, which move inversely to prices. The yield on a ten-year UK government bond, also known as a gilt, climbed to 4.38 per cent, having been at 4.23 per cent before the weekend.

Higher bond yields are generally unhelpful for stock markets: they are a sign of higher borrowing costs for companies and the higher returns on offer reduce the relative appeal of owning equities.

Given that, and the broader “risk-off” attitude of traders, the FTSE 100 declined 1.2 per cent for its biggest one-day fall since November.

Travel companies, such as IAG, the British Airways owner, and Carnival, the cruise ship operator, were among the worst performers, while arms manufacturers, including BAE Systems and Babcock, outperformed.

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The FTSE 250, which is more sensitive to the UK economy and inflation levels, suffered its worst day since September as it dropped 1.4 per cent.

However, the FTSE 250 still fell back only to where it was in mid-February, while the FTSE 100 was lower than this only a week ago.

On Wall Street, indices were broadly positive with the S&P 500 up 0.1 per cent at 6,882.89 and the Nasdaq trading up 0.4 per cent by lunchtime in New York. The Dow Jones industrial average was down 0.1 per cent at 48,948.67.

Elsewhere, prices of aluminium, of which the Middle East is a major producer, reached a one-month high, while global sugar prices rallied 2 per cent on fears that the conflict and resulting disruption to energy supplies will prompt Brazilian cane mills to produce more ethanol and less sugar.

Cargo ship owners have also started to increase their rates given the added risk and cost of circumnavigating battle zones. The main Baltic index, which tracks rates for capesize, panamax and supramax vessels, rose 2.2 per cent to its highest level since December 16.Business Economics