European stock markets recorded strong losses for a second consecutive day, as the ongoing conflict in the Middle East weighed on global investor sentiment, while Eurozone inflation unexpectedly rose in February amid growing concerns about the crisis’ impact on prices.

The pan-European Stoxx 600 plunged 3.08% to 604.44 points, with all sector indices moving lower. Banks and insurance companies suffered the largest declines, while the defense sector, which had gained yesterday, fell more than 2%.

The major regional markets experienced a similar downturn: Germany’s DAX fell 3.44% to 23,790 points, France’s CAC 40 dropped 3.46% to 8,103 points, and London’s FTSE 100 fell 2.75% to 10,484 points.

In the periphery, Milan’s FTSE MIB tumbled 3.92% to 44,468 points, and Madrid’s IBEX 35 declined 4.55% to 17,062 points.

European equities continued their downward trajectory as the U.S.–Iran conflict, which began over the weekend, threatens to spread throughout the Gulf region. Qatar reportedly carried out strikes inside Iran in response to yesterday’s attack it faced, while Saudi Arabia is also close to retaliating.

Meanwhile, Israel expanded its targeting to Lebanon after the pro-Iranian Hezbollah organization launched missiles and drones against Tel Aviv.

U.S. President Donald Trump stated that the United States will do “whatever is necessary” to achieve its military objectives, suggesting that operations could last several weeks—significantly longer than initial estimates.

Investor sentiment in Europe was also affected by the unexpected acceleration of Eurozone inflation last month—before the additional price pressures from the current Middle East crisis—which implies that March’s inflation data will likely be even higher.

Inflation across the 21 Eurozone countries rose to 1.9% from 1.7% a month earlier, exceeding the forecast of 1.7%. Core inflation, which excludes volatile energy and food prices, increased to 2.4% from 2.2%.

Financial markets currently do not expect a change in the European Central Bank’s deposit rate, which remains at 2%, although the surge in energy prices could push interest rates higher by the end of the year.

Despite the dominance of geopolitical developments, European investors also had to assess new corporate earnings. Highlights on the earnings calendar included Thales, SIG Group, Kuehne & Nagel, and Lottomatica.

In commodities markets, oil prices have literally “caught fire,” recording a rally of unpredictable magnitude following Iranian threats to the Strait of Hormuz and potential large-scale attacks on oil facilities across the region.

The May Brent contract surged 6.59% to $82.86 per barrel, while WTI crude rose 6.37% to $75.77 per barrel.

Conversely, gold dropped significantly amid a stronger dollar and rising U.S. bond yields, with futures falling 3.64% to $5,118 per ounce.

However, a new Fitch Solutions analysis maintained that gold could quickly reach new highs above $5,600 if the Iran crisis shows no signs of de-escalation.

In foreign exchange markets, the U.S. dollar rose to its highest level in over a month, with the dollar index climbing to 99.15, while the euro/dollar rate fell to 1.1588, a decline of 0.85% for the European currency.