European stocks dipped Thursday as investors fretted over the escalating Middle East conflict, now in its sixth day. Germany's DAX fell 0.4%, France's CAC 40 slipped 0.4%, and the UK's FTSE 100 dropped 0.1%. The war, sparked by U.S. and Israeli strikes on Iran and widened by a U.S. submarine sinking an Iranian warship off Sri Lanka, is testing global economic resilience, according to IMF chief Kristalina Georgieva. She warned prolonged conflict could hike energy prices, inflation, and pressure central banks.

Meanwhile, Eurozone retail sales data due later could offer clues on inflation. Bank of France Governor Francois Villeroy de Galhau saw no immediate need for ECB rate hikes despite energy price fears, though he acknowledged the conflict might lift inflation and dampen growth. Oil prices rallied sharply, with Brent crude hitting $83.75 and WTI at $77.08, as traders worried about supply disruptions through the Strait of Hormuz.

Corporate earnings also drew attention, with Reckitt beating sales forecasts led by emerging markets, DHL forecasting higher 2026 profits despite geopolitical risks, and Swiss insurer Swiss Re posting record annual results. The conflict's economic ripple effects remain the dominant market theme.