European stock markets opened lower on Tuesday, tracking a retreat on Wall Street from record highs, as oil prices remained elevated near their recent peaks. The decline comes amid persistent geopolitical tensions between the United States and Iran over the Strait of Hormuz, a critical chokepoint for global oil shipments that directly affects European energy security.
Brent crude, the international benchmark, was trading at $112.86 per barrel in early European hours, down 1.38% from Monday's surge above $114. US crude, or WTI, fell 2.27% to $104 per barrel. Despite the slight pullback, prices remain significantly above pre-war levels—before the conflict in Ukraine began in late February, Brent was trading near $70.
Strait of Hormuz: A European Energy Lifeline Under Threat
The Strait of Hormuz, through which roughly 20% of the world's oil passes, remains largely closed to commercial shipping despite repeated US demands for Iran to reopen the waterway. The US military reported on Monday that it had sunk six Iranian small boats that were targeting civilian vessels, while two US-flagged ships successfully transited the strait. US President Donald Trump's so-called 'Project Freedom' initiative, which aims to guide stranded ships through the strait, began operations on Monday.
For European economies, which rely heavily on imported oil and gas, any disruption to Hormuz poses a direct threat. The European Union imports approximately 25% of its crude oil from the Middle East, much of it passing through this narrow waterway. Earlier reports indicated that Trump's plan to clear the strait had briefly eased prices, but the fragile ceasefire between Washington and Tehran has proven short-lived.
Asian trading was thin overnight, with markets in Japan, South Korea, and mainland China closed for holidays. Hong Kong's Hang Seng index fell 1.1% to 25,805.98, while Australia's S&P/ASX 200 lost 0.5% to 8,649.80. Taiwan's Taiex edged 0.2% lower.
The sustained high oil prices are already feeding through to European consumers. Petrol prices at the pump in Germany, France, and Italy have risen by more than 15% since the start of the year, adding to inflationary pressures that the European Central Bank is struggling to contain. The ECB has signalled it may raise interest rates sooner than previously planned, but higher energy costs complicate the outlook for growth.
European energy companies are also feeling the strain. Shares in BP, Shell, and TotalEnergies were all lower in early trading, despite the high oil price environment, as investors worry about the broader economic impact of sustained geopolitical instability. The STOXX Europe 600 Oil & Gas index fell 0.8%.
The situation in the Strait of Hormuz has broader implications for European foreign policy. The EU has traditionally sought to maintain diplomatic channels with Tehran, even as the US pursues a more confrontational approach. However, the blockade and the ongoing skirmishes are testing European unity. Some member states, particularly France and Germany, have called for a de-escalation, while others, such as Poland and the Baltic states, have aligned more closely with Washington's hardline stance.
Analysts at the Brussels-based Centre for European Policy Studies warned that a prolonged closure of the strait could force European governments to tap strategic petroleum reserves, a move that would be politically sensitive given the already high cost of living. The recent exit of the United Arab Emirates from OPEC has further complicated the global supply picture, reducing the cartel's ability to stabilise prices.
For now, European investors are watching the Strait of Hormuz with growing unease. The combination of elevated oil prices, fragile ceasefire conditions, and thin holiday trading is creating a volatile environment. As one London-based fund manager put it, 'The market is pricing in a risk premium that could persist for weeks, if not months. Every skirmish in the Gulf sends a shiver through European equity desks.'
