European stocks retreated sharply Tuesday as the escalating Middle East conflict weighed on global sentiment. Germany's DAX fell 1.9%, France's CAC 40 slipped 1.2%, and the UK's FTSE 100 dropped 1%. The conflict between the US and Iran has threatened to engulf the entire Gulf region, with missile strikes targeting the US embassy in Riyadh and Amazon data centers in UAE and Bahrain, raising concerns about the safe-haven status of Gulf cities like Dubai.

Corporate earnings reports offered mixed results for European investors despite geopolitical tensions. Thales exceeded analyst expectations with strong Aerospace and Defence segments, while SIG reported a €350.7 million loss after non-recurring charges. Kuehne + Nagel saw a 24.8% drop in annual profit as its equity ratio fell to 18.5%. Flutter Entertainment, however, beat expectations with 21% profit growth as it continued gaining online market share.

Oil prices continued their surge, with Brent crude jumping 4.3% to $81.10 and WTI rising 4% to $74.05, after climbing as much as 13% on Monday. Iranian threats to disrupt the Strait of Hormuz have heightened concerns about crude supply. Later Tuesday, markets await Eurozone inflation data with expectations of 1.7% annual inflation and 2.2% core inflation, as rising energy prices continue to impact the region's economic outlook.