European stock markets took another downwards lurch after Asian markets declined, with Japan’s Nikkei 225 slumping 5%, in response to Brent crude oil prices soaring 14% to $106 a barrel as the war in the Middle East showed no sign of ending.

The FTSE 100, having dropped 5.7% last week following the launch by the US and Israel of a sustained air bombardment on Iran and its retaliation by blocking the Strait of Hormuz to shipping and striking targets across the region, shed a further 1.3%, or 134 points, to 10,150.

Oil giants BP and Shell were among a small number of stocks making small gains, but these were offset by falls in miners, property companies, defence contractors and some financials at the prospect of the Bank of England holding interest rates at 3.75%, rather than cutting them, with a possible rate rise next year.

Crude prices have soared from $71 before the outbreak of war nine days ago. Analysts at Goldman Sachs said Brent could exceed the $146 peak set in 2008 if the flow of tankers through the strait did not start to recover before the end of the month.

JP Morgan said if oil prices settled at $120, global inflation would rise by more than 1%. Elevated oil and gas prices for the rest of the year would knock global growth up to 1.2 percentage points, it added.

Dan Coatsworth, head of markets at AJ Bell, said: “Tipping over the $100 a barrel level has major implications from a psychological and economical perspective. It significantly raises the chances of a sharp jump in inflation and interest rates shifting to a completely different path than the market had priced in only two weeks ago.”

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