European Stocks Tumble Amid Middle East Escalation and Hawkish Rate Expectations

European stocks retreated on Monday as escalating tensions in the Middle East drove oil prices above $90 a barrel and fueled expectations of a US interest rate hike.

The pan-European index fell by 0.1% as investors weighed the implications of direct US-Iranian military exchanges over the weekend, which snapped a brief lull in hostilities and raised fears of disruptions to commercial shipping through the Strait of Hormuz.

Crude oil futures surged nearly 3% to trade near $90.60 a barrel after US forces carried out air strikes targeting two Iranian rocket launchers on Larak Island.

The surge in crude prices reignited cost-push inflation fears for European industrial sectors, even as it provided temporary support to integrated energy heavyweights.