Hormuz Tensions and Rate Hike Fears Weigh on European Equities

European equities opened the week on a muted note due to escalating military tensions in the Persian Gulf and an impending European Central Bank policy meeting. The pan-European STOXX 600 index ticked up 0.1%, but remained near multi-week lows as investors processed fresh geopolitical friction along one of the world's most critical maritime bottlenecks.

The Strait of Hormuz, which accounts for roughly 20% of global seaborne oil and gas flows, has become a focal point in the escalating standoff between Iran and the US. Iranian authorities signaled plans to declare a restricted zone outside the strait in response to US forces striking and disabling three Iranian oil tankers over the weekend.

The prospect of an enduring naval blockade or transit restrictions threatens to choke off global energy supplies, raising fears of a cost-push stagflation shock across European industrial supply chains. Meanwhile, money markets have almost fully baked in a 25-basis-point interest rate increase from President Christine Lagarde and the ECB Governing Council ahead of Thursday's monetary policy gathering.