European stocks mixed as heightened U.S.-Iran tensions sway risk sentiment

European equities traded in a mixed pattern on Tuesday as renewed clashes between the U.S. and Iran pushed risk sentiment back and forth.

The pan-European Stoxx 600 managed to eke out a 0.7% gain, while Germanys Dax rose 1.7% and Frances CAC 40 climbed 1.1% after recovering from small early losses. Britains FTSE 100 lagged, sliding about 1.4% as investors reacted to heightening geopolitical risks and company-specific news.

The market shift followed a fresh round of attacks on Monday in which the U.S. and Iran exchanged strikes. Tehrans actions were described as a response to a U.S. move dubbed Project Freedom by the White House aimed at reopening shipping through the Strait of Hormuz, a choke point that handles roughly one-fifth of the worlds seaborne oil.

Several merchant vessels in the Gulf reported fires or explosions, according to shipping sources, and the U.S. said it helped two American-flagged ships transit the strait despite coming under attack from Iranian drones and armed small boats. The confrontation also showed signs of widening in the region: United Arab Emirates air defenses engaged ballistic missiles and drones reportedly launched from Iran, and an oil terminal in Fujairah was struck.

The fighting has effectively choked tanker traffic through the Strait of Hormuz for much of the more than two-month conflict, sending benchmark oil prices sharply higher and stoking concerns about inflation and a drag on global growth. Brent crude futures, the global oil benchmark, eased about 3.5% to $110.44 a barrel on Tuesday but remained well above pre-war levels.

U.S. President Donald Trump, who is facing growing scrutiny from some lawmakers over the handling of the conflict, has provided few public details about the operation to reopen the waterway. Irans foreign minister warned Washington against becoming mired in a wider quagmire.

Despite the escalation, some market strategists continue to see room for at least partial de-escalation over time. Michael Brown, senior research strategist at Pepperstone, said he still expects a broader direction toward de-escalation to underpin risk appetite, while cautioning that investor sentiment now depends on more than just geopolitical hopes.

On the corporate front, HSBC shares tumbled more than 5% after the bank reported first-quarter profit below expectations, weighed down by a surprise £400 million (about $400 million) charge tied to a fraud case in Britain. By contrast, Anheuser-Busch InBev jumped after reporting quarterly profit that beat analysts estimates.

With oil and regional security developments still dominating headlines, traders said markets could remain choppy. Investors are watching for further operational details on efforts to reopen shipping lanes, for any sign the regional military exchanges expand, and for company-level earnings and charges that could alter sector and index performance.

For now, the picture is one of cautious trading: some European indices and sectors looked to rally on hopes of a cooling in tensions, while others, especially those with greater exposure to Britain or to companies reporting disappointing results, underperformed. The market response in the near term will likely hinge on whether the latest strikes mark a flashpoint or a moment that pushes both sides back toward restraint.