Order books on the sell side; rates to remain "higher for longer"

European stocks fall as tensions with Iran escalate, fueling inflation concerns

Apr. 20, 2026 at 8:09am

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An extreme close-up of intricate, industrial-looking banking machinery and equipment, conveying a sense of financial security and institutional power through a highly textured, cinematic visual style.As tensions over geopolitical conflicts escalate, the financial sector braces for prolonged high-interest rates and inflationary pressures.NYC Today

European stock markets started the week in negative territory as risk sentiment deteriorated following a fresh escalation of tensions with Iran. Conflict dynamics worsened over the weekend, with the U.S. intercepting an Iranian cargo ship and Iran striking a tanker in the Strait of Hormuz. The energy price shock further complicates the disinflationary path and reinforces the central banks' "higher for longer" interest rate narrative.

Why it matters

The escalation in tensions with Iran has reignited inflationary pressures, with crude oil prices rallying sharply. This complicates the central banks' efforts to tame inflation and reinforces expectations that interest rates will remain elevated for an extended period, potentially weighing on economic growth.

The details

European markets fell on Monday, with the FTSE 100 down 0.6%, the DAX 40 shedding 1.5%, and the CAC 40 retreating 1.3%. On the Milan bourse, the FTSE MIB lost 1.4%, falling to 48,182.28 points. The energy sector was a bright spot, with Eni gaining 2.9% as crude prices rose. Saipem announced a major contract with Eni for a new biorefinery project, while UniCredit said it would outline details of a potential approach to create value for Commerzbank.

  • Over the weekend, U.S. naval forces intercepted and seized control of an Iranian cargo ship in the Gulf of Oman following an attempted breach of the maritime blockade.
  • Iran struck a tanker transiting the Strait of Hormuz over the weekend, further escalating tensions.

The players

Eni

An Italian multinational oil and gas company.

Saipem

An Italian oilfield services company that announced a major contract with Eni for a new biorefinery project.

UniCredit

An Italian banking and financial services company that said it would outline details of a potential approach to create value for Commerzbank AG.

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What’s next

The market continues to price in a hawkish stance from the Federal Reserve in the short term, with expectations centered on rates remaining unchanged throughout the year in the absence of a significant improvement in inflation dynamics and a reduction in the geopolitical risk premium linked to energy.

The takeaway

The escalation in tensions with Iran has reignited inflationary pressures, complicating central banks' efforts to tame inflation and reinforcing expectations that interest rates will remain elevated for an extended period, potentially weighing on economic growth.