Markets react to new shocks in Gulf energy supply
European equities fell sharply on Thursday as investors weighed renewed attacks on Middle Eastern energy infrastructure. The Morningstar Europe Index slid more than 2% and has fallen nearly 8% since the fighting began, setting up what would be its worst month since June 2022.
Energy markets moved fast. European natural gas futures jumped as much as 25% early in the session to around €67 before easing back toward €61. Oil also rose, with Brent crude trading higher and earlier touching $116, while WTI gained as well.
Ras Laffan and South Pars become flashpoints
Qatar said retaliatory Iranian attacks caused “extensive” additional damage to Ras Laffan, the world’s largest liquefied natural gas facility. The update came one day after Israel struck Iran’s South Pars gas field, widely described as the world’s largest gas field.
The escalation is intensifying investor concern that disruptions could broaden beyond oil into gas and LNG flows, a major vulnerability for import dependent economies in Europe and parts of Asia.
Why Europe and Asia are taking the bigger hit
With Europe and many Asian countries relying heavily on imported energy, the selloff has been more pronounced outside the United States. US markets have shown relative resilience since the conflict began, reflecting the country’s position as a net energy exporter and the dollar’s usual safe haven pull during geopolitical shocks.
Central banks hold rates as inflation risks return
Markets are also adjusting to the policy risk that higher oil and gas prices could push inflation upward and delay rate cuts. The US Federal Reserve held rates steady on Wednesday and signaled uncertainty around the path forward, while still pointing to one potential cut later this year.
On Thursday, the Bank of Japan, Swiss National Bank, Sweden’s Riksbank, the Bank of England, and the European Central Bank also kept rates unchanged, underscoring the tension between weaker growth signals and renewed inflation pressure.
Bond yields rise as investors reprice the outlook
Government bond yields moved higher. UK 10 year yields rose to about 4.87%, Germany’s 10 year bund yield climbed near 2.97%, and US 10 year Treasury yields edged up to roughly 4.29%. The move reflects shifting expectations on rates, inflation, and the economic fallout if energy disruption persists.
