The FTSE 100 suffered its biggest fall since November on Monday, dropping 1% in early trading as markets reacted to US-Israel strikes on Iran. The blue-chip index fell 111 points to 10,798, with travel and banking stocks hit hardest while oil producers and defence firms rallied.
Oil prices surged amid fears of disruption to shipping through the Strait of Hormuz, with European natural gas futures jumping as much as 25%. Analysts at Wood Mackenzie warned that crude could exceed $100 a barrel if tanker flows are halted. Shell and BP rose 5.7% and 6.3% respectively, while defence giant BAE Systems climbed 7%.
Travel stocks were among the biggest losers, with British Airways parent IAG falling 9.5%, easyJet down 6.2%, and Intercontinental Hotels dropping 5.8%. Thousands of flights have been cancelled in the region. The pound weakened as investors sought safe havens, pushing the US dollar up 0.8%.
The crisis also dimmed hopes for interest rate cuts, with the probability of a Bank of England rate cut in March falling to 68% from 80% last week. Higher energy prices are expected to complicate efforts to bring inflation down to target.
Elsewhere, India and Canada signed deals on critical minerals and uranium supply after talks between Prime Minister Narendra Modi and Mark Carney, marking a fresh start in bilateral relations.
