About £42bn was wiped off the value of London’s top 350 listed companies on Monday as mounting fears of an imminent Russian attack on Ukraine triggered a global share sell-off.
European stock markets fell heavily, following losses in Asia-Pacific markets, as geopolitical tensions drove oil prices to seven-year highs.
The FTSE 100 index lost 1.7%, or 129 points, to close at 7532 points, its biggest fall since the crisis rocked markets three weeks ago. Airline group IAG, which owns British Airways, fell 5.6%.
Financial stocks were also hit, with Barclays down 5.1%, and Lloyds Banking Group and NatWest losing around 4.1%, as the blue-chip index lost more than £34bn, falling away from the two-year high set last week.
The FTSE 250 index of mid-sized companies lost 1.95%, or £7.7bn, with eastern European airline Wizz Air tumbling 6.3% and cruise operator Carnival down 4.8%.
There were heavy falls across Europe amid concerns that energy supplies to the region could be disrupted if Russia were to invade Ukraine.
Germany’s DAX index and Italy’s FTSE MIB both shed 2%, while France’s CAC closed 2.3% lower. The selloff came as German chancellor, Olaf Scholz, visited Kyiv on Monday and will travel to Moscow on Tuesday, warning that an attack by Russia would lead to “tough sanctions” being immediately imposed.
“Just as the storm of Covid appeared to be receding, the growing expectation of an invasion of Ukraine is the fresh threat now unnerving investors,” said Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown. “Energy markets are clearly on edge and if supplies are threatened, there is a risk oil will shoot up even higher, adding price pressure for companies.”
Heightened expectations of a Russian invasion of Ukraine drove the price of Brent crude oil to above $96 a barrel for the first time since September 2014, before it eased back to $94.50.
Analysts warned that oil could soon breach the $100 mark as tensions rise, with the price of oil having already risen more than 20% since the start of 2022. Natural gas prices also rose, with the UK contract for next-day delivery up 4%.
Russia is responsible for a third of Europe’s natural gas and about 10% of global oil production.
Craig Erlam, analyst at brokerage Oanda, said the Ukraine crisis had accelerated the move in crude prices towards $100 per barrel, as the oil market was “extremely tight at the moment” and the Opec oil cartel fell short on quotas.
“Demand growth is strong and Opec+ continues to fail to hit output targets. Rather than getting closer, the gap is even widening. We don’t need Opec+ to expand targets – it’s time for unilateral action from Saudi Arabia which reportedly has the capacity to alleviate the pressures. Until then, hope lies with a nuclear deal between the US and Iran. In the absence of either, triple-figure oil looks very possible,” Erlam predicted.
The jump in the oil price threatens to push fuel prices higher in coming weeks, with UK petrol prices hitting record highs last weekend.
“The big issue for consumers will be the question mark over those rising energy prices. How high can they go; how much extra pain can be inflicted at a time many people are already struggling with rising costs?” said Danni Hewson, AJ Bell financial analyst.
“Though the price of a barrel of oil has backed off from earlier highs, that will be of little comfort to drivers heading to the pumps this evening and wincing at the numbers displayed on screen.”
Nervous investors rushed into safe-haven assets such as the US dollar, pushing the pound down to a one-week low of around $1.352.
The falls in European shares prices followed a sell-off in Asia. Hong Kong’s benchmark Hang Seng index fell by about 1.4%, while Japan’s Topix and South Korea’s Kospi closed 1.6% lower.
Stocks dipped in New York, adding to losses on Friday night when the US warned that there was a “very distinct possibility” of a Russian invasion of Ukraine in the next few days. The Dow Jones index of 30 leading US companies was down 0.5% around midday, while the tech-focused Nasdaq had recovered around 0.6%.
“Markets are preparing for the risk of war in Europe, and it’s adding to the complex of issues driving uncertainty and volatility in global markets currently,” said Kyle Rodda, an analyst at IG. “The concern is about the impact such a conflict will have on fragile energy markets, European economic growth, and the broader financial system if sanctions are slapped on Russia.”
