Oil prices rise and markets fall after US ship seizure hits Iran peace deal hopes

Oil prices rose sharply and European stock markets fell on Monday, after the US seizure of an Iranian vessel hit hopes for a peace deal.

Brent crude, the international benchmark for oil prices, rose by as much as 5% on Monday to $95.50 (£70.75) a barrel.

European stock markets dropped, with the UK’s blue-chip FTSE 100 index down 0.5%. The French Cac 40 and the German Dax both fell by about 1%. The Stoxx Europe 600 index, which tracks the biggest companies on the continent, was down 0.9%.

It comes after Donald Trump announced on Sunday that an Iranian cargo ship that tried to get past the US-enforced blockade near the strait of Hormuz shipping channel had been seized.

He wrote on social media: “We have full custody of their ship, and are seeing what’s on board!”

The incident raised the possibility that the ceasefire could fail before negotiators reconvene in Pakistan.

The war in Iran, which is now entering its eighth week, has killed thousands and rocked the global energy market. Normally about one-fifth of the world’s oil and gas passes through the strait of Hormuz.

Airline stocks also fell sharply on Monday amid fears over the impact on international travel and jet fuel shortages. IAG, the owner of British Airways, dropped 3.4%, while Wizz Air dropped 4.9%. Ryanair, Europe’s biggest airline, fell 3.3%. Rolls-Royce, which manufacturers engines for aircraft, also fell by about 3%.

The energy companies BP and Shell were among the biggest risers on the FTSE 100 on Monday, with shares in both up more than 2%.

Oil prices had slumped 9% on Friday, after Iran said it would reopen the strait of Hormuz during its agreed two-week ceasefire period, and Trump said Iran had agreed to never close the key shipping channel again.

However, over the weekend there were reports that the Iran’s Revolutionary Guards had fired upon tankers.

Tehran has also said it will not participate in a second round of negotiations that the US had hoped to start before the ceasefire expires this week.

Susannah Streeter, the chief investment strategist at the broker Wealth Club, said hopes for the resumption of trade, especially energy shipments, have “evaporated”, causing “fresh jitters” in the stock market.

“Deep reserves of patience are needed, but with some industries such as airlines staring at jet fuel shortages, these are tense times,” she said.