Europe open: Shares slump as Iran threatens total blockade of Hormuz Strait

(Sharecast News) - European shares slumped at the open on Monday as the US-Israel war on Iran escalated, with Tehran threatening to block the vital Strait of Hormuz, sending oil and gas prices higher.

The pan-regional Stoxx 600 index was down 1.77% to 563.22 at 0827 GMT with all major bourses in the red. Germany's DAX fell 2%, France's CAC 40 1.56%, Italy's MIB 1.7% and Spain's IBEX 2.21%.

Benchmark crude oil was up 1.58% to $114 a barrel and West Texas Intermediate 1.64% to $99.84 as Iran responded to US President Donald Trump's increasingly bellicose language by firing missiles and drones at neighbouring targets and threatening to lay sea mines to block the entire Gulf if its coasts or islands are attacked.

"Any attempt by the enemy to attack Iranian coasts or islands will naturally, and in accordance with common military practice, cause all access routes and communication lines in the Persian Gulf and the coasts to be mined with various types of naval mines, including floating mines that can be released from the coasts," the country's defence council said in a statement released by the State Fars news agency.

"In that case, the entire Persian Gulf will practically find a situation similar to the strait of Hormuz for a long time. This time, along with the strait of Hormuz, the entire Persian Gulf will be practically blocked, and the responsibility for it will lie with the threatening party."

Share prices followed a slide in Asian markets as the key Strait of Hormuz remained blocked to most shipping and Trump on Saturday warned he would "obliterate" Iran's power plants if Iran didn't reopen the waterway within 48 hours.

"Markets are increasingly pricing not just energy disruption but long-term higher inflation and slower growth combined with a central bank policy mistake, lower liquidity, tighter financial conditions and so on," said Saxo Uk strategist Neil Wilson.

So, while the best channel for financial markets to express war fears was initially via crude and gas prices, increasingly it's about stocks and bonds. Most worrying is the move in bond markets."

"Last week we saw bond markets roiled as markets priced not just duration risks from a long conflict raising inflation, but also central banks swinging behind pulling monetary policy levers to combat it."

"The war is entering a new phase of escalation and markets are finally starting to wake up to the gravity of the potential for long-term impact on energy markets. We are entering a new and very dangerous phase for financial markets."

In equity news, Telecom Italia jumped as state-controlled postal service Poste Italiane tabled a �12.50bn offer for the company.

Reporting by Frank Prenesti for Sharecast.com