Brent crude prices surged and global equity markets sold off sharply on Wednesday after US President Donald Trump declared the ceasefire with Iran was finished.
The FTSE 100 (^FTSE) closed down 176.84 points, or 1.7%, at 10,489.04, marking a significant single-day decline driven by geopolitical fears.
The FTSE 250 fell 361.18 points, or 1.5%, to 23,017.64, while the AIM All-Share dropped 11.11 points, or 1.4%, to 758.07.
Trump made the remarks at a Nato summit in Turkey, saying “as far as I’m concerned, it’s over” when asked whether the truce with Iran remained intact.
He added: “It’s just a waste of time dealing with them,” signalling a hardening of the US position as regional hostilities intensified.
Fighting escalated after Iran attacked ships in the Strait of Hormuz, with Tehran insisting it will charge passage fees and threatening vessels that deviate from its authorised route.
Iran’s military has struck at least three ships in recent days, triggering extensive US strikes against Iranian targets and retaliatory attacks from Iran on Gulf countries.
Brent crude for September delivery surged to 80.00 dollars a barrel on Wednesday, up sharply from 73.88 dollars on Tuesday, boosting energy stocks across London.
BP (BP.L) led FTSE 100 gainers, rising 3.5%, while Shell (SHEL.L) added 2.3%, both benefiting directly from the sharp move higher in crude prices.
Stephen Innes at SPI Asset Management warned that “the risk now is escalation by inches,” describing a scenario of incremental conflict rather than a single dramatic outbreak.
Innes said: “That is how war premiums are rebuilt. Not always with a trumpet blast,” underlining the slow-burn nature of the current threat to energy markets.
Airline stocks bore the brunt of investor concern over higher fuel costs, with British Airways owner IAG (IAG.L) falling 4.8% and Wizz Air (WIZZ.L) on the FTSE 250 losing 5.0%.
Mining stocks also retreated heavily as metal prices fell, with Endeavour Mining sliding 7.1%, Antofagasta dropping 6.4%, Anglo American easing 6.3%, and Rio Tinto falling 4.9%.
In European markets, the Cac 40 in Paris and the Dax 40 in Frankfurt each ended the session down 2.2%, reflecting broad-based risk aversion across the continent.
In New York, the Dow Jones Industrial Average fell 1.6%, the S&P 500 dropped 1.1%, and the Nasdaq Composite also declined by 1.1%.
Housebuilder Vistry (VTY.L) fell 7.1% on the FTSE 250 after announcing that chief financial officer Tim Lawlor is stepping down and forecasting a first-half pre-tax loss of around £30 million.
RBC Capital Markets analyst Anthony Codling described the situation as “one step forward, three steps back” and warned that “things could get worse before they get better” at Vistry.
Codling added: “Progress is being made, but uncertainty remains,” noting the group is not yet able to quantify the costs of the actions required under its ongoing strategic review.
Warehouse landlord Segro (SGRO.L) fell 1.8% after outlining financial targets and flagging £460 million of income potential from its European data centre pipeline as it seeks to fend off suitor Prologis.
Amid the market turbulence, the International Monetary Fund said UK inflation is set to ease back to the 2% target set by the government and Bank of England by mid-2027, offering some modest reassurance on the domestic economic outlook.