European stocks drop amid Israel-Iran conflict concerns

European stocks declined sharply on Tuesday, with the STOXX 50 dropping 1% and the broader STOXX 600 shedding 0.8%, as rising geopolitical tensions in the Middle East reignited risk aversion across global markets.

Investor sentiment took a hit after U.S. President Donald Trump called for the evacuation of Tehran and abruptly left the G7 summit, moves that were interpreted by markets as signals of a potential escalation in U.S. involvement in the Israel-Iran conflict. Speculation mounted that the White House could step up military and diplomatic backing for Israeli Prime Minister Benjamin Netanyahu’s ongoing offensive, which has intensified with continued strikes on Iranian missile depots and launch infrastructure.

The heightened geopolitical risks, combined with rising oil prices and a general risk-off tone, weighed across most sectors. Travel and leisure, financials, and healthcare stocks were among the hardest hit. Amadeus IT Group fell 3.4%, pressured by concerns over travel disruptions across the Middle East. UniCredit dropped 2.5%, as financials broadly retreated on fears of market instability and reduced appetite for risk assets. Bayer slipped 2.3%, extending losses following recent litigation-related headlines and weak sector performance.

Renewable energy stocks also faced heavy selling after reports emerged that the U.S. Senate Finance Committee is actively discussing a plan to phase out federal tax credits for solar and wind energy by 2028. The news raised concerns over the long-term profitability of green energy firms, especially those with significant U.S. exposure. SMA Solar Technology plunged 5.5%, Orsted fell 2.7%, and Nordex declined 2.5%, as investors reassessed growth projections for the sector under a less supportive regulatory framework.

Elsewhere, mining and defense stocks saw some relative outperformance, as investors rotated into traditionally safer or conflict-sensitive areas. BAE Systems and Thales gained modestly, reflecting increased demand for defense-linked equities. Basic resources stocks, bolstered by higher commodity prices, also offered pockets of support amid the broader downturn.

Looking ahead, traders remain focused on developments in the Middle East, the outcome of the U.S. Federal Reserve's policy meeting, and any updates from the European Central Bank, with several ECB officials scheduled to speak later this week. Uncertainty around energy security, U.S. trade policy, and monetary direction is expected to keep markets volatile in the near term.