European markets tumble as Gas prices double

• European markets tumble as gas prices double.
• UK Spring forecasts dealt blow by rising inflation expectations and borrowing costs.
• Gold eases as USD and energy prices look set for a period of strength.

European markets are being hit hard, as the full inflationary impact of the war in Iran truly comes home to roost. Coming of the back of yesterday’s 1.3% decline for the FTSE 100 (biggest decline since November 2025), the index already trades over 2% lower this morning. Meanwhile it is a similar story in mainland Europe, with the DAX, Ibex, CAC, and eurostoxx all over 2% lower amid rising concerns of a drawn-out conflict that will spark fresh inflationary pressures. According to Bloomberg, a $10 increase in oil could add 0.3% to CPI and drive GDP -0.2% lower. However, the real impact would be felt if we see crude hit $100, with a $30 increase in oil expected to bring a 0.9% rise to eurozone CPI and a -0.6% hit to growth. Unfortunately, it is not only oil that the Europeans have to worry about, with the move away from Russian imports leaving the region particularly exposed to the impact of the decision to halt LNG production in Qatar (15% of European LNG imports). With current Dutch gas prices standing at €57/MWh, there is a strong chance they will soon trade at double the €30/MWh low seen just last week.

Today sees the OBR release their latest Spring forecast statement, signalling their perceived direction of travel for the UK economy. With the government opting to reduce the frequency of fiscal budgets to just once a year, today will instead largely focus on the outlook for key data points such as growth and inflation. Nonetheless, set against a backdrop of rapidly rising energy prices, there will undoubtedly be plenty of scrutiny over how higher oil and gas prices could spark a fresh bout of inflation. Following the controversy surrounding the Autumn “black hole” in the public finances, the declines seen in UK bond yields over the course of February would have made for a good news story that the Chancellor and OBR could point to as a sign of progress. However, once again that trend has been dealt a blow in the wake of the Iran conflict, with the UK 10-year yield essentially reversing a months’ worth of declines in the first two days of March. The most prominent move has come in the 2-year bond yield, which has spiked higher as the likeliness of a March rate cut from the BoE fades (now 32%).

Coming off the back of a period where precious metals seemed to be the only game in town, the rise in the US dollar and surging inflation expectations have dented sentiment for gold and silver despite the geopolitical concerns. Instead, the new narrative centres around the resurgence of the US dollar and the potential upside for energy prices. With the tariffs struck down by the Supreme Court, his new blanket 15% rate does remove much of the risk that Trump will wield US trade policy as a stick to beat any nation or leader that he wants to coerce into a particular concession. Meanwhile, while higher energy prices may not be popular with the electorate or the Fed, a higher-for-longer approach to rates coupled with higher oil & gas export revenues do provide the basis for further USD strength to come. From an energy perspective, the recent removal of insurance coverage for ships passing through the Straits of Hormuz provided an effective closure of the key shipping lane. While the US claims that the Straits of Hormuz remains open following the destruction of much of the Iranian Navy, the cancellation of insurance coverage and Iranian threats of that ships will be set ablaze for passing through the passage mean that journeys have slowed to a trickle. This means that oil prices are likely to rise as long as this conflict rages on, with this key bottleneck proving to be one of Iran’s most important points of leverage as they seek to pressure the US President through higher inflation and destruction of key facilities for US allies in the region. All the talk is of $100 crude, and that does seem a distinct possibility in the event of a month-long conflict as highlighted by Trump.