European stock markets closed lower yesterday, extending losses as concerns over the violent stand-off in Libya and protests across the Middle East drove oil prices sharply higher.
Dealers said the demonstrations in Libya, and leader Muammar Gaddafi’s stated intention to fight them to the ‘last man’, stoked worries that popular unrest in the Middle East could leave the whole region destabilised.
Significantly, Saudi Arabia’s King Abdullah returned home yesterday after medical treatment abroad to announce a major increase in social benefits, a move apparently made to head off any unrest in the world’s largest oil producer and a key Gulf power.
“The assumption that a coalition of different elites could keep systems stable has proven not to be correct anymore,” London-based Middle East analyst Neil Partrick told AFP. King Abdullah must “be in a state of shock”.
In London, the FTSE 100 index of leading shares closed down 1.04 per cent at 5,923.53 points while in Paris, the CAC 40 was down 0.92 per cent to 4,013.12 points. In Frankfurt, the DAX shed 1.69 per cent to seven,194.60 points.
“The Libyan conflict continues to cast its shadow amid rising fears that the turmoil could spread to Bahrain and other oil-producing states,” said sales trader Will Hedden at IG Index.
“Stocks are lower again... as investors continue to fret about the prospect of an escalation in Middle East tensions,” analyst Kathleen Brooks at Forex.com said.
In New York, stocks fell in early trade, with the blue-chip Dow Jones Industrial Average down 0.69 per cent at around 1700 GMT and the Nasdaq Composite off 1.47 per cent.
Dealers said that while higher oil prices added to concerns that inflation may prove more of a problem than previously thought, the impact so far would not suggest a major threat to the recovery.
“While the unrest continues to raise the risk of regional contagion, it is unlikely these events will destabilise the US economic recovery,” said Kimberly DuBord of Briefing.com.
“Global risks are on the rise but the safety trade is not as robust as one would think considering the events unfolding in Libya.”
Oil prices meanwhile topped $111 for the first time since September 2008.
In late trade, Brent North Sea crude for delivery in April hit $111.29, up $5.51 from Tuesday, with New York’s light sweet crude for April jumping to $99.10, up $3.68.