How Europe’s Markets, Airlines, and the ECB Are Responding to the Latest U.S.-Iran Strikes

Earlier in May, the pattern was starker. On May 12, the Stoxx 600 fell 1.2% after President Donald Trump signaled that no durable peace deal was in sight, pulling Germany’s DAX down 1.4% alongside it . The opening of markets on March 2—the first session after Operation Epic Fury began—was even more severe, with the Stoxx 600 losing 1.6% and the Euro Stoxx 50 falling 2% at the open as investors reacted to a weekend of large-scale U.S. and Israeli strikes .

The takeaway for equity markets is binary: they rally when a truce looks credible and fall back when it does not.

Oil Prices: Peace Talk Rallies Are Fragile

Brent crude has become the most reliable real-time gauge of the war’s trajectory. Before the conflict, Brent started 2026 at roughly $61 per barrel, according to the U.S. Energy Information Administration . That changed radically after the joint U.S.-Israeli strikes on February 28 and the closure of the Strait of Hormuz, which sent prices soaring.

By the end of the first quarter, Brent had reached $118 per barrel, the steepest inflation-adjusted quarterly increase since 1988, according to the EIA . The 2026 high came on April 29, when Brent hit nearly $120 as the U.S. considered resuming attacks after a month of failed diplomacy .

Fast forward to late May. In the session before the May 26 strikes, Brent dropped about 7% on expectations of a peace deal . The new U.S. strikes erased those gains almost immediately. In early Asian trading, Brent rose nearly 2% to $97.56 a barrel, and continued climbing to around $99–$100 as the session progressed .

This dynamic—sharp drops on talk of diplomacy, fast spikes on new strikes—has been the defining feature of energy markets for three months. The Strait of Hormuz remains de facto closed to commercial petroleum traffic, and global crude prices will stay elevated until it is safely reopened .

Airline Stocks: Fuel Costs and Falling Shares

European airlines have absorbed some of the heaviest blows of the war. Jet fuel costs have roughly doubled since the conflict began, and carriers with limited hedging programs are the most exposed .

Air France-KLM was trading at €8.92 in late March after raising long-haul economy round-trip fares by €50 in response to fuel prices that hit $168 per barrel . By April, Air France-KLM was down more than 20% year-to-date, while Lufthansa had fallen roughly 17% .

On March 2, when European markets opened for the first time after the war began, Air France-KLM and Lufthansa both fell around 7% in early trade, and IAG, the parent of British Airways, fell 9% . In April, European airlines collectively urged the European Union to introduce emergency support measures, warning that widespread airspace closures and jet fuel supply concerns were threatening operations .

Consumer impacts are already measurable. A study by Transport & Environment estimated the war had added roughly $104 to the average fuel cost for each passenger on long-haul flights leaving Europe and €29 for flights within Europe .

The ECB’s Dilemma: Energy Inflation Meets Weak Growth

The European Central Bank is walking a policy tightrope. Energy-driven inflation is rising, but the war is also slowing economic activity—a classic supply shock that resists simple monetary policy answers.

The ECB had been in a rate-cutting cycle before the conflict. Most analysts now expect it to hold rates steady or at most slow the pace of future cuts. A full rate hike is considered unlikely unless inflation expectations become seriously unanchored . The central risk is that a prolonged closure of the Strait of Hormuz pushes the eurozone into a stagflationary dynamic: high energy prices feed inflation at a time when growth is weakening, leaving the ECB with no comfortable option.

Diplomacy and the Strait of Hormuz: The Two-Steps-Forward, One-Step-Back Cycle

The military phase known as Operation Epic Fury—the initial U.S. and Israeli campaign—was declared concluded on May 5 . Since then, the United States has continued what it describes as defensive strikes on Iranian missile sites and boats accused of laying mines in Gulf waters .

In late May, Iranian negotiators arrived in Qatar for talks aimed at ending the war. Within hours, the U.S. launched new strikes, derailing the session before it could produce results . By May 28, Trump said Iran was “negotiating on fumes” while the U.S. conducted yet another round of strikes, and Iran responded by targeting a U.S. base .

The Strait of Hormuz, through which roughly a fifth of the world’s oil consumption normally passes, has been effectively closed to commercial shipping since late February . Reopening the Strait is the central demand of energy markets and the core subject of every diplomatic channel. Until a comprehensive and durable ceasefire takes hold, safe passage through the Strait cannot resume, and global energy prices will continue to reflect the binary risk of either a sudden breakthrough or a deeper escalation.

The U.S. administration was preparing a fresh round of strikes as recently as May 22, even as indirect diplomacy continued in parallel . No final decision on that round had been made as of that date. Markets, for their part, remain caught between two extremes—waiting for a deal that could crash oil prices and rescue beaten-down equity and airline shares, or bracing for further escalation that would push Brent well above $100 and deepen the sell-off.