LONDON, July 8 (Xinhua) -- A fresh flare-up in the Middle East sent energy prices sharply higher and European shares lower on Wednesday, reigniting fears that another oil and gas shock could derail Europe's disinflation process and weigh on its fragile economic recovery.
Brent crude futures surged about 7 percent to around 80 U.S. dollars a barrel on Wednesday, as investors priced in the risk of further supply disruptions through the Strait of Hormuz, one of the world's most important energy shipping routes. European natural gas prices also rose, with the Dutch TTF benchmark climbing more than 4 percent to 48.47 euros (55.26 U.S. dollars) per megawatt-hour.
Equity markets retreated across Europe as higher energy costs fueled expectations of stickier inflation and higher-for-longer interest rates. Germany's DAX and France's CAC 40 both dropped more than 2 percent, while Britain's FTSE 100 also closed lower.
The market reaction followed fresh military strikes by the United States against Iranian targets, as well as U.S. President Donald Trump's remarks that the ceasefire with Iran was "over." The flare-up reversed part of the earlier optimism that energy supplies would ease after OPEC+ raised production quotas and Middle Eastern producers moved to ramp up output.
ING Think, the research arm of Dutch-headquartered financial institution ING, said in an analysis on Wednesday that reported attacks on vessels in the Strait of Hormuz, including an LNG carrier and an oil tanker, had raised fears of further disruption to energy shipments.
The analysis added that intensified Ukrainian drone strikes on Russian refineries were also tightening middle-distillate markets by reducing Russian diesel exports, at a time when markets were still waiting for refined-product flows from the Middle East to return to normal.
The pressure is also being felt in Europe's gas market.
Jorge Leon of Rystad Energy said that even if the latest tensions do not lead to a lasting physical disruption of energy flows, uncertainty over shipping safety, insurance costs, potential delays and the risk of further reprisals could keep commodity markets highly volatile in the short term.
According to ING, gas storage facilities in Europe were less than 51 percent full, compared with a five-year average of 66 percent for this time of year. Meanwhile, Europe's liquefied natural gas imports have declined as Asian buyers have turned more actively to the spot market amid Middle East supply disruptions, adding to concerns about supply tightness ahead of the winter heating season.
Some European countries have already taken steps to protect domestic energy supplies. The Serbian government has extended temporary restrictions on exports of crude oil and petroleum products until July 31, in order to safeguard domestic fuel availability amid continued uncertainty in global energy markets and risks to international oil supply chains.
The market turmoil coincided with a warning from the International Monetary Fund that fresh conflict in the Middle East would hurt growth, worsen supply shortages and add to inflationary pressures.
In its latest World Economic Outlook update on Wednesday, the IMF said risks to the global economy remained tilted to the downside, warning that further geopolitical tensions could reignite commodity price volatility, tighten financial conditions and aggravate food insecurity in low-income countries.
The IMF projected global growth to slow from 3.5 percent in 2025 to 3.0 percent in 2026, before rebounding to 3.4 percent in 2027. It also raised its global headline inflation forecast to 4.7 percent in 2026, up from 4.1 percent in 2025, before inflation is expected to ease to 3.9 percent in 2027.
"The most imminent risk" to the global economy stems from developments in the Middle East, the IMF said in its report. "Re-escalation of geopolitical tensions would hurt growth and compound inflationary pressures."
The IMF said Europe is particularly exposed because of its dependence on imported energy and other commodities. Higher oil and gas prices feed into transport, heating, electricity and industrial costs, while disruptions to energy and fertilizer markets could also push up food prices.
Analysts said the latest tensions have left Europe facing a difficult policy trade-off. Higher energy prices threaten to lift inflation and unsettle financial markets, while weak growth limits the room for central banks to raise rates aggressively. Unless tensions ease and energy flows stabilize, Europe's fragile recovery could again be tested by an external supply shock.
