European stock markets start the fourth week since the outbreak of the war in the Middle East with significant losses, exceeding 2% among the main indices. Oil remains the central reason for concerns, especially after the warning from the International Energy Agency (IEA) which speaks of a historical severity in the oil market situation.
"No country will be immune if the situation continues in this direction," emphasized the agency's president, Fatih Birol, during a visit to Australia this Sunday. In his opinion, the current supply crisis is "very serious" and even worse than those experienced in the 1970s that began with the Yom Kippur crisis. Iran keeps the Strait of Hormuz closed to all ships belonging to enemy countries, which continues to weigh on the price of oil and gas, maintaining sustained prices 60%-90% higher than before the conflict erupted. Hence the fear that it could have longer-lasting economic effects on inflation and global growth if the situation persists. 20% of global oil and gas supply passes through the Strait of Hormuz.
This morning, Brent oil, used in Europe, is slightly up by less than 2% although its price exceeds $113 per barrel. The U.S. West Texas is already trading above $100, a level not seen since 2022. This means that in three weeks of war, oil has surged its price by almost 60%, starting from $72 per barrel in the European case. And the gas price increase is even higher. The Dutch TTF gas, used in Europe, has doubled its price, reaching over 60 euros per MWh this Monday, with contained increases, after last week's sessions of highly volatile trading when it surged by almost 30% in just a few hours.
But what stands out this day is the plummet of precious metals, especially gold, with drops that have exceeded 10% this morning. The decline with European markets already open is contained at 6%, returning to levels around $4,200 per ounce that it lost overnight. Why? Experts point out several reasons: the first being that gold is not acting as a safe haven in this crisis - as it usually does - since investors are buying more dollars (which had been heavily penalized against other major currencies) and also more bonds, with now more attractive yields and with the possibility that central banks may even raise interest rates again. But there is another reason, the rally that the precious metal had experienced in recent months. In just the last year, the price of gold rose from $3,100 to $5,300. Since the outbreak of the war, its correction is 20%.
With this scenario, and after the news accumulated over the weekend, investors are rushing to the sales window today. Following the losses seen in Asia, Europe wakes up with losses exceeding 2% for the EuroStoxx 50 index and the stock exchanges of Frankfurt and Paris. The same goes for the Ibex 35%, where Indra is close to losses of 4%, being the most punished stock in the index; followed by companies like Acciona, ArcelorMittal, Merlin Properties, or the airline IAG with losses exceeding 3% this session.
One of the main concerns for investors is that they do not see the end of the conflict. This past Sunday, U.S. President Donald Trump issued an ultimatum to the Iranian regime to reopen the Strait of Hormuz or else, he will attack the country's main electricity and energy supply facilities. The response from Tehran has been to threaten, in turn, "all energy, information technology, and desalination infrastructures belonging to the U.S." in the region. The warlike tone used by both administrations does not bode well for an early end to the war. This Monday, with volatility soaring by more than 25% in the markets, investors are looking for who will be able to cushion the blow. So far, the IEA has hinted that it could release more millions of barrels of oil from its strategic reserves to contain the impact of the closure of the Strait of Hormuz on fuel prices.
Last week, in a series of meetings and public statements by the world's major central bankers, the Federal Reserve, in a wait-and-see approach, decided to keep interest rates steady; while in Europe, both the Bank of England and the European Central Bank (ECB) were more explicit in showing their concern about the direct and secondary impact of the Middle East conflict on their economies. With interest rates untouched for now, the ECB significantly raised its inflation forecasts for this year, from 1.9% to 2.6%, with an additional drop in the Eurozone's economic growth estimate.