Global stock and bond markets experienced a sharp downturn Tuesday as escalating tensions in the Middle East fueled fears of prolonged disruption to energy supplies and a potential slide into stagflation. Dublin’s Iseq index led European declines, falling 2.6 percent, mirroring a broader euro-wide slump.
The sell-off was widespread, with AIB, Bank of Ireland, and Ryanair posting significant losses of 2.2 percent, 2.9 percent, and 2 percent respectively. In New York, the S&P 500 fell 1.4 percent, and the Nasdaq Composite dropped 1.5 percent by early afternoon. The benchmark Stoxx Europe 600 index closed down 3.1 percent, marking its steepest daily drop since April 2024, following the imposition of tariffs by the Trump administration.
“It’s panic selling,” said Emmanuel Cau, head of European equities strategy at Barclays. “This is a stagflationary scare. The market was complacent about the scale of this war [before the weekend].”
Oil prices surged amid the conflict, with Brent crude rising as much as 9 percent to over $85 a barrel – its highest level since July 2024 – before settling back to $83. European gas prices jumped 20 percent, and Asian gas prices saw an even more substantial increase of 65 percent. The disruption stems from increased avoidance of the Strait of Hormuz, a critical waterway for oil and gas transport, as Iran and its allies retaliate against US-Israeli strikes.
The US embassy in Saudi Arabia issued a warning Tuesday regarding a potential attack on Dhahran, home to Saudi Aramco, the state oil giant. A fire also broke out at the Fujairah oil terminal in the United Arab Emirates after intercepting a drone attack. These incidents have heightened concerns about the security of energy infrastructure in the region.
Elliot Hentov, head of macro policy research at State Street Investment Management, cautioned that “I don’t think the worst is behind us yet in terms of oil supply concerns,” adding that “the short-term threats [by Iran to oil infrastructure] are credible and it’s enough to throttle shipping.”
The turmoil in energy markets is also impacting monetary policy expectations. Traders are now pricing in a 25 percent chance of a rate increase by the European Central Bank before the finish of the year, a significant shift from pre-conflict expectations of further rate cuts. Andrew Jackson, head of investments at Vontobel, stated that the bond market is being “punished for its ‘complacency’ on inflation and hopes for further rate cuts,” asserting that “inflation is not dead…and surging oil and gas prices ‘are going to craft it worse.’”
In the United Kingdom, the likelihood of a quarter-point cut at the Bank of England’s meeting later this month has plummeted to approximately 25 percent, down from 90 percent on Friday. The market now anticipates only one such cut by the end of the year.
Travel disruptions are also mounting. All 16 flights scheduled between Dublin Airport and airports in the Middle East have been cancelled for a second consecutive day. Approximately 900 Irish citizens are currently stranded in transit, according to reports.
The Irish Defence Forces confirmed that all Irish troops stationed with UNIFIL in South Lebanon are “well and accounted for,” with operations continuing under heightened security measures. US President Donald Trump indicated that the timeframe for military operations against Iran could extend beyond the initially projected four-to-five weeks.
