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The FTSE 100 opened lower this morning as tensions in the Middle East ratcheted up over the weekend, pushing oil prices higher.
London's main index opened around 1 per cent - or 100 points - lower at 10,259, dragged lower by the rising price of Brent crude and playing catch-up with Monday's selloff. The FTSE shed a further 38 points to 10,225 by mid-afternoon.
The price of a barrel has soared since the start of the conflict, reaching as high as $126 at one point last week. Prices have since retreated, before climbing 6 per cent on Monday to $114.44 a barrel.
This morning, Brent held onto most of Monday's gains, slipping just 1 per cent to around $113 a barrel.
The already fragile ceasefire came under further pressure as the US and Iran exchanged fire in the region, and the UAE came under fresh attack.
The US announced it would escort ships through the Strait of Hormuz and Iran warned that it would attack any vessels trying to pass through. The US went ahead regardless, according to reports, and Iran retaliated.
It comes after President Trump's 'freedom' plan aimed at restoring shipping through the Strait.
European markets were in a brighter mood this morning, with Germany's Dax up 0.76 per cent and France's Cac rising 0.61 per cent. The Stoxx 600 was up 0.34 per cent.
Fragile truce: Iran and the US have exchanged fire in the Gulf
Bonds also underperformed, with the 10-year gilt yield rising 0.12 percentage points to 5.082 per cent.
Susannah Streeter, chief investment strategist at Wealth Club, said: 'There's also unease ahead of the local elections, with Labour expected to take a drubbing in the polls.
'This could potentially weaken Keir Starmer's position further, and investors in UK government debt are uneasy, given worries that a replacement might cause the government to veer into a less fiscally responsible spending direction.'
HSBC led the FTSE 100's biggest fallers this morning, shedding over 5 per cent after reporting a drop in profits on higher credit losses.
Standard Chartered and Lloyds also fell 3.2 and 2.8 per cent, respectively, as the banking sector extends its credit provisions to cover the financial fallout from the war.
Intertek jumped 7.5 per cent after the Swedish private equity firm EQT tabled a third takeover proposal, valuing it at £8.93billion.
BT Group, Autotrader and Rightmove also rose between 2 and 6 per cent.
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