Key Points
- FTSE 100 declined by 1.2% amid a global selloff triggered by escalating military conflict in the Middle East involving Iran, Israel, and the United States.
- Oil prices surged nearly 7% following Iranian retaliation that disrupted shipping in the Strait of Hormuz after weekend airstrikes killing Iran’s Supreme Leader Ayatollah Khamenei.
- FTSE 250 fell by 1.4%, with airlines, hotels, and banks among the hardest hit sectors, while oil and defence shares rose.
- Earlier on 26 February 2026, FTSE 100 hit a record high of 10,910.55, up 0.6%, outperforming European and US markets despite US-Iran tensions.
- Benchmark UK gas prices soared over 60% since the conflict began, closing at 128p per therm on 3 March 2026, down from a peak of 170p.
- Approximately 20% of global oil and gas transits the Strait of Hormuz, where navigation has nearly ceased due to Iran’s threats to “set fire” to vessels.
- Brent crude futures soared 9.3% to $79.70 per barrel, West Texas Intermediate climbed 8% to $72 per barrel amid US military strikes on Iran.
- Defence firms like BAE Systems topped performers alongside oil majors BP and Harbour Energy, while travel stocks such as International Consolidated Airlines Group (IAG) saw sharp declines.
- From 27 February to 27 March 2026, BP shares rose 22.3%, TotalEnergies by 16.7%, and Shell by 13.3% in Europe due to expectations of prolonged high oil prices.
- President Donald Trump vowed to continue strikes on Iran, pushing oil above $100 a barrel as stocks slipped further on 23 March 2026.
- FTSE 100 dropped 0.8% in early trading on 2 March 2026 as conflict rippled across the Middle East.
FTSE 100 experiences a 1.2% decline as geopolitical tensions in the Middle East escalate, with oil prices surging nearly 7% after Iranian retaliation disrupts key shipping routes, partially offsetting broader market losses driven by a global selloff.
What Triggered the FTSE 100 Decline?
The FTSE 100 index fell sharply by 1.2% on 2 March 2026, caught in a wave of global market turbulence. As reported by Reuters journalists on 2 March 2026, UK stock markets were swept up in the selloff as an escalating military conflict in the Middle East fuelled a jump in oil prices and drove investors towards safe-haven assets. This downturn followed weekend airstrikes by Israel and the United States that resulted in the death of Supreme Leader Ayatollah Khamenei, prompting Iranian retaliation that disrupted shipping in the vital Strait of Hormuz.
Oil prices jumped nearly 7% in response, providing a cushion for energy-heavy components of the index. Concurrently, the FTSE 250 decreased by 1.4%, reflecting widespread sector-specific pressures. Defence shares rose amid the uncertainty, contrasting with drops in airlines, hotels, and banks, which suffered from fears of higher fuel costs and reduced travel demand.
Yahoo Finance UK coverage on 2 March 2026 detailed how oil prices experienced significant volatility, with Brent crude futures soaring by 9.3% to reach $79.70 per barrel, while West Texas Intermediate futures climbed 8% to $72 per barrel. In terms of market performance, the FTSE 100 recorded a decline of 0.8% in early trading as conflict rippled across the Middle East following US military strikes on Iran.
How Did Oil Prices Surge Amid the Conflict?
The oil surge became a defining feature of the market response. BBC News reported on 3 March 2026 that oil and gas prices dipped slightly on Wednesday but remained much higher than when the conflict started, after shipping traffic was virtually halted. The benchmark gas prices in the UK have soared by over 60% since the conflict erupted, closing at 128p per therm at the end of trading on Wednesday, though it was below Tuesday’s peak of 170p.
Typically, around 20% of the world’s oil and gas transits through the Strait of Hormuz, a narrow passage between Iran and the United Arab Emirates. However, navigation through this strait has nearly ceased due to Iran’s threats to “set fire” to vessels. Reuters further noted on 23 March 2026 that stocks sank while oil leapt above $100 as President Donald Trump vowed to keep hitting Iran.
This volatility traces back to late February. As detailed by National Today on 26 February 2026, oil prices jumped as Iran said the US would have to drop its “excessive demands” to reach a deal, tempering optimism from recent talks. Inkl.com echoed this on the same date, noting the FTSE 100’s record close amid these tensions.
Which Sectors Gained and Lost the Most?
Sector performance highlighted the dichotomy in market reactions. Defence companies like BAE Systems were among the top performers, along with major mining and oil corporations such as BP and Harbour Energy (HAVL.L), as per Yahoo Finance UK on 2 March 2026. Conversely, travel stocks, including British Airways’ parent company International Consolidated Airlines Group (IAG), saw the most substantial gains—no, declines.
A month into the conflict, Yahoo Finance UK on 30 March 2026 reported stark winners and losers. Consequently, investors have been channeling funds into firms poised to gain from a prolonged high-price scenario. “They anticipate the conflict will persist for some time,” analyst Torres remarked. “This suggests that oil prices are likely to remain structurally elevated over the next year or two”.
In European markets, BP spearheaded the increase with a remarkable 22.3% rise from 27 February, the last trading day before the strikes commenced, to 27 March. During the same timeframe, TotalEnergies advanced by 16.7%, while Shell increased by 13.3%.
What Was the Market Context Before the Slip?
Prior to the plunge, the FTSE 100 had been on a strong run. National Today on 26 February 2026 reported the index ended at a record high, up 0.6% at 10,910.55, as the UK market outperformed its European and US counterparts. The gains came despite renewed losses on Wall Street as investors weighed stronger-than-forecast wholesale inflation data and rising tension between the US and Iran.
The FTSE 100 hit an intraday high of 10,934.94 before closing at 10,910.55, up 63.85 points or 0.6%. The FTSE 250 and AIM All-Share also posted gains. London’s performance came despite losses on Wall Street, where the Dow Jones, S&P 500, and Nasdaq all declined. For the week, the FTSE 100 rose 1.1%, the FTSE 250 was slightly higher, and the AIM All-Share climbed 0.9%, as per Inkl.com.
London’s gains came despite renewed losses on Wall Street as investors weighed stronger-than-forecast wholesale inflation data, and assessed rising tension between the US and Iran.
Why Are Investors Flocking to Safe Havens?
The shift to safe-haven assets underscores the uncertainty. Reuters on 2 March 2026 explained that the selloff drove investors towards safer assets amid the oil surge. US defence stocks saw no sustained lift after an early surge, as noted in their 24 March 2026 global markets wrap.
President Trump’s vow to persist with strikes amplified fears, pushing oil higher while equities slipped. Analysts like Torres foresee structurally elevated oil prices, influencing investment flows.
What Does This Mean for the Broader Economy?
The conflict’s ripple effects extend beyond stocks. Higher energy costs threaten inflation rebounds, particularly with UK gas prices up over 60%. Prolonged disruption in the Strait of Hormuz could exacerbate global supply chain issues.
For professionals navigating these volatile markets, Financial Modelling courses equip you with tools to forecast impacts and build resilient strategies. Similarly, Risk Management training helps identify and mitigate geopolitical risks in investment portfolios.