European equities traded cautiously on Monday, with both the STOXX Europe 600 and Euro STOXX 50 fluctuating near the flatline as investors monitored escalating geopolitical tensions in the Middle East and growing concerns over a prolonged global oil shock.
Market sentiment remained fragile after President Donald Trump rejected Iran’s latest counterproposal aimed at ending the ongoing 10-week conflict, describing Tehran’s response as “totally unacceptable.” Iranian officials responded defiantly, stating the country would “never bow” to external pressure, further reducing hopes for a near-term diplomatic resolution.
The renewed uncertainty pushed oil prices higher, intensifying fears that sustained disruptions in energy markets could pressure economic growth, inflation, and corporate margins across Europe.
Defense stocks, which had previously rallied amid heightened geopolitical tensions, came under pressure during Monday’s session. Shares of Rheinmetall declined 3.6%, while Italian defense group Leonardo fell 3.8%.
Luxury goods companies also traded lower as investors reduced exposure to consumer-sensitive sectors. Shares of LVMH dropped 1.3%, while L’Oréal lost 1.1%, and Hermès declined 1.9%.
On the positive side, Danish pharmaceutical giant Novo Nordisk surged nearly 5%, providing support to healthcare stocks across the region.
Energy companies also benefited from the sharp rise in crude prices. Shares of Shell gained 0.6%, while TotalEnergies advanced 0.9% as investors positioned for stronger earnings tied to elevated commodity prices.
Analysts note that European markets remain highly sensitive to developments surrounding the Strait of Hormuz and broader Middle East instability, particularly given Europe’s dependence on imported energy and the inflationary risks associated with prolonged supply disruptions.
