Shares in airlines and associated industries sharply reversed course on Monday morning after US President Donald Trump revealed "very good" talks with Iran over resolving the war.
Trump posted that the US military has been ordered to postpone military strikes in the Gulf after the US and Iran held "very good and productive conversations" over the past two days aimed at a "complete and total resolution" of the war.
He said he had instructed the Department of Defense to "postpone any and all military strikes against Iranian power plants and energy infrastructure for a five day period, subject to the success of the ongoing meetings and discussions", which he said would continue throughout the week.
Shares in engine maker Rolls-Royce Holdings PLC (LSE:RR.) and British Airways owner International Consolidated Airlines Group SA (LSE:IAG) rose 3.9% and 4.4%, having earlier been leading London's blue-chip fallers as investors buckled up for a longer period of turbulence in air travel markets due to worries that the Iran war was leading to a potential crisis for jet fuel reserves.
Shares easyJet PLC (LSE:EZJ) turned a 3% fall into a 2% rise, while Wizz Air Holdings PLC (AIM:WIZZ) flipped a 3.7% plunge to a 1.8% increase.
Analysts at Deutsche Bank said the escalation of the Iran war had last week led to "first signs of potential spill-over effect on the commercial aerospace sector, especially in Europe", notably higher fuel prices and higher fuel consumption on re-routed flights.
"Now the concern has spilled over to the larger question of jet fuel availability. Europe is among the most exposed, with 25–30% of its jet fuel demand coming from the Gulf region.
"This now leaves Europe largely reliant on commercial inventories that typically amount to just over one month of demand."
** UPDATE: Adds details on peace talks, changes prices **