European stocks and bonds tumbled Thursday as investors braced for a protracted energy shock following attacks on Middle Eastern energy infrastructure. The Stoxx Europe 600 fell 2.5%, with Germany's Dax dropping 3% and the FTSE 100 sliding 2.7%. All three indices hit their lowest levels since the conflict began, with energy sector the only bright spot.

Government bonds across Europe sold off sharply as traders bet central banks would raise rates to combat inflation. Germany's 10-year Bund yield briefly topped 3% for the first time since 2023, while UK gilts saw their biggest yield jump since the conflict started. The Bank of England warned it stands ready to act on inflation.

Energy prices surged dramatically, with Europe's TTF gas benchmark jumping 35% to €74 per MWh before recovering slightly. Brent crude briefly hit $119 a barrel. Analysts warned the longer the energy crisis persists, the deeper equity markets could fall, with Barclays' Emmanuel Cau noting the clear downside risk to markets.