Middle East Escalation Sends European Stocks Sliding

European stocks fell on Monday as rising tensions in the Middle East drove up crude oil prices and sparked concerns about inflation. The pan-European STOXX index declined 0.1% despite gains by energy majors, which were unable to offset broader market selling.

The increase in crude prices was triggered by military clashes between US and Iranian forces over the weekend, with US forces carrying out airstrikes targeting Iranian rocket launchers on Larak Island. In response, Iranian forces targeted US military positions in Jordan.

Oil futures jumped nearly 3% to trade above $90 a barrel, fueling cost-push inflation fears for European industrial sectors. The surge also provided temporary support to integrated energy heavyweights.

The market's risk-off tone was further exacerbated by the hawkish shift in global bond markets following Federal Reserve Chair Kevin Warsh's warning that policymakers still have work to do to tame inflation.