European shares began the trading week under pressure on Monday as investors reacted to an ultimatum from U.S. President Donald Trump demanding that Iran reopen the Strait of Hormuz.
By 04:00 ET (08:00 GMT) the Stoxx 600, which tracks the broader pan-European market, was down 1.3%. Germany's Dax fell 2.0%, France's CAC 40 slipped 1.6%, and the U.K.'s FTSE 100 dropped 1.3%.
Markets in Europe followed a weak lead from Asia, where equity indexes sank overnight. Several Asian economies depend heavily on imports from the Gulf, making them particularly sensitive to any energy supply disruptions.
"Escalation in the war remains bad news for asset markets," said Thomas Mathews, Head of Markets, Asia Pacific, at Capital Economics.
The joint U.S.-Israeli assault on Iran has now entered its fourth week. A new round of strikes on Tehran knocked out power across parts of the Iranian capital, while much of the market concern continues to center on the Strait of Hormuz - a narrow but strategic waterway south of Iran through which about one fifth of the world's oil supply moves.
Commercial vessels have been effectively deterred from transiting the strait amid fears of targeting by Iranian forces, and container shipping companies have struggled to secure insurance for voyages through the region.
President Trump threatened to hit key Iranian power facilities if Tehran did not reopen the strait by Monday night. Iran responded by saying the passage would remain "completely closed" should any of its energy infrastructure be struck.
Brent crude, the global benchmark, continued to rally as traders worried the conflict could keep the strait closed for an extended period, tightening supplies flowing out of the Persian Gulf. Brent was last recorded up 2.9% at $109.52 a barrel, after settling at $112.19 a barrel on Friday. Before the start of the war, Brent traded at roughly $70 a barrel.
Europe's energy exposure is not limited to oil. The continent imports significant volumes of natural gas from the Gulf region, including from Qatar. A major natural gas production facility in the Gulf was recently struck in the course of Iranian attacks on sites across the Middle East, driving natural gas prices in Europe sharply higher.
Policymakers in Europe are taking note. Last week the European Central Bank warned that a drawn-out conflict could rekindle inflationary pressures that had appeared to be under control before fighting resumed in late February. The ECB said officials stand ready to adjust interest rates as needed, adding to speculation that central bankers may consider raising borrowing costs in the months ahead.
This combination of rising energy prices, disrupted shipping insurance and geopolitical uncertainty left investors weighing risks to growth and inflation, and pushed major European benchmarks lower at the opening bell.