Stock markets tumbled as oil prices and the dollar jumped Monday after US President Donald Trump and Iranian leaders traded threats over the key Strait of Hormuz.
With the conflict now in its fourth week and showing no sign of ending, the International Energy Agency warned of the worst global energy crisis in decades.
The latest escalation hammered stock markets, with London, Paris and Frankfurt losing more than two percent in late morning deals.
Seoul and Tokyo tumbled 6.5 percent and 3.5 percent respectively by the close, while Hong Kong and Shanghai slumped more than three percent.
Oil prices jumped more than one percent with Brent above $113 and West Texas Intermediate topping $101.
"The risk dial has been turned up again on the Middle East conflict, causing widespread turbulence on financial markets," noted Russ Mould, investment director at AJ Bell.
"It's possible that market volatility could intensify as the day progresses unless Trump backs down before the 48-hour deadline expires."
Trump on Saturday gave Iran 48 hours to reopen the Strait of Hormuz to shipping or face the destruction of its energy infrastructure.
The ultimatum came as the waterway -- through which a fifth of global oil and gas flows -- remained effectively closed.
Iran warned Hormuz "will be completely closed" should Trump act on his threat.
Observers have raised the prospect of surging inflation from elevated oil prices, forcing central banks to hike interest rates.
Disruption to fertiliser shipments has meanwhile fanned concerns about global food security.
The prospect of higher borrowing costs has hammered the price of non-yielding gold, which slumped another seven percent Monday. The dollar gained against most of its peers.
Yields on 10-year government bonds are meanwhile surging, with the UK rate topping five percent to reach the highest level since the 2008 global financial crisis.
"As government bonds... see yields rise, it makes gold less attractive given that gold pays no interest," said Susannah Streeter, chief investment strategist at Wealth Club.
"Investors who have made losses elsewhere in volatile markets are selling to cover positions, while the strengthening of the dollar also makes gold more expensive for buyers in other currencies."
The latest escalation came as Israel said the Middle East war could last several more weeks, with its military expanding ground operations in Lebanon against Iran-backed militant group Hezbollah.
- Key figures at around 1030 GMT -
London - FTSE 100: DOWN 2.4 percent at 9,677.20 points
Paris - CAC 40: DOWN 2.1 percent at 7,507.40
Frankfurt - DAX: DOWN 2.3 percent at 21,877.15
Tokyo - Nikkei 225: DOWN 3.5 percent at 51,515.49 (close)
Hong Kong - Hang Seng Index: DOWN 3.5 percent to 24,382.47 (close)
Shanghai - Composite: DOWN 3.6 percent at 3,813.28 (close)
New York - Dow: DOWN 1.0 percent at 45,577.47 (close)
Brent North Sea Crude: UP 1.3 percent at $113.62 per barrel
West Texas Intermediate: UP 1.0 percent at $99.19 per barrel
Euro/dollar: DOWN at $1.1490 from $1.1550 on Friday
Pound/dollar: DOWN at $1.3263 from $1.3323
Dollar/yen: UP at 159.58 yen from 159.30 yen
Euro/pound: DOWN at 86.63 pence from 86.68 pence
dan-bcp/ajb/gv
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