Nerves have intensified since it became known yesterday that it has entered a new phase in which energy infrastructures have become a military objective. The attack by the United States and Israel on the largest natural gas field exploited by Iran had an immediate response: Tehran fulfilled its threats and on Wednesday hit the largest gas plant on the planet and several Saudi oil facilities in the Red Sea. Fear of a supply shock drives up crude oil and gas prices and reactivates fears of a rebound in inflation in the midst of an economic slowdown.
This scenario has quickly been transferred to the markets, with stock markets, debt and gold widening losses. The Ibex 35, which yesterday managed to close positively, has not been able to avoid the bearish tone this time and lost 2.3%, after having lost close to 3% in the first hour. The declines are widespread this Thursday and only two listed companies avoid falls. Although the rise in energy prices can hamper consumption and, consequently, economic activity, firms linked to gas and oil prices show greater resistance: Naturgy advances 1% and Repsol adds 1.4%. Aside from the impact of the war on the markets, the Ibex 35 and plummeted 12.28%, in its worst day since 2022, after the suspension of the purchase of Escribano.
The deterioration is widespread in Europe. The indices of the Old Continent register cuts of between 2.5% in the German Dax and 1.8% in the French Cac. Wall Street, which suffered a severe corrective on Wednesday, limits the falls to 0.5%. The news coming from the Persian Gulf does not help to temper spirits. According to Reuters, Iranian attacks have knocked out 17% of Qatar’s liquefied natural gas export capacity and early studies suggest that the facilities’ return to full capacity could take between three and five years. Against this backdrop, natural gas traded in the Netherlands and serves as a European reference, the so-called TTF, rises by 19%, some distance from the 35% increase previously recorded. For his part, the brent It moderates the opening gains and balances at $110, compared to the $119 it touched in the early stages.
The interventions of those responsible for monetary policy, far from calming doubts, have intensified them. Hours after the announcement, the Bank of Japan, the Bank of England and the ECB have followed the same line and left rates at their current levels while they evaluate the impact of the conflict on inflation and growth.
The ECB, in line with the Federal Reserve, warns that the war in Iran increases inflationary risks and worsens the economic prospects of the euro zone. Their new projections already incorporate rising energy prices and raise the inflation forecast for this year to 2.6%, compared to the 1.9% estimated three months ago. The review is more intense than in the United States: while the Fed foresees a rebound of just over three tenths. In parallel, the organization chaired by Christine Lagarde lowers its growth forecast, which goes from 1.2% to 0.9%. Overall, the ECB draws a more demanding scenario for the euro zone, with greater inflationary pressures and weaker GDP growth. “Europe has more at stake in this energy crisis, and the ECB knows it,” says Madison Faller, Global Investment Strategist at JP Morgan Private Bank.
Investors interpret these messages as a sign that central banks are prioritizing inflationary risks. Felix Feather, economist at Aberdeen Investments, considers at least one additional hike by the ECB likely before the end of the year. “The pace and timing of these increases will depend on the duration of the conflict in the Middle East,” he notes.
The market reaction has been immediate. Debt yields accelerate upwards and, inversely, prices deepen their falls. Although the movement affects the market as a whole, the impact is especially pronounced on short-term bonds, the most sensitive to monetary policy expectations. Yields on German securities maturing in 2028 rose 11 basis points, to 2.55%, their highest levels in March 2024.
In just 24 hours, operators have gone from assigning less than 30% probability to a rate hike in April to raising it above 50%. “Investors should not draw comparisons with 2022. The starting point is important. The macroeconomic context is more solid; inflation has cooled considerably (1.9% at the end of February compared to 5.8% four years ago) and monetary policy has remained firmly neutral for months,” notes Faller. For his part, Peter Goves, head of developed market sovereign debt at MFS IM, believes that volatility will remain high as long as geopolitical tensions do not ease.
The movement is even more pronounced in the United Kingdom. The yield on two-year bonds rose 28 basis points, to 4.4%, after investors began to discount up to three increases this year. “If energy prices remain at high levels for a prolonged period, increases are highly likely,” says James Smith, an analyst at ING.
The US debt does not escape cuts. The yield on the two-year bond advances eight basis points, to 3.8%. Pimco economists highlight that the caution shown by Fed members yesterday is a good reflection of the uncertainty and risks to global energy supply. “Given the risks to both sides of the dual mandate (inflation and employment), we continue to expect the Fed to keep rates unchanged for most of 2026, before resuming its easing cycle towards a neutral rate slightly above 3%,” they emphasize.
The market reaction paints a scenario in which geopolitical risk once again imposes itself on the cycle and forces central banks to operate in especially uncertain terrain. The combination of inflationary pressures and increasingly fragile growth puts the European economy in a vulnerable position. The challenge for investors will be to distinguish how much of this movement responds to a specific adjustment due to the rise in energy risk and how much anticipates a more persistent deterioration in economic expectations. The trajectory of oil and gas in the coming days – and the ECB’s ability to contain the deterioration of confidence without compromising its anti-inflationary credibility – will determine whether today’s session is another episode of volatility or the beginning of a change of narrative in European markets.
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