The pan-European STOXX 600 index fell 0.4% to 617.27 points. Most major regional bourses finished in the red: Spain's IBEX 35 dropped 0.5%, while the French CAC 40 shed 0.6%.
Markets weighed conflicting headlines after President Donald Trump suggested that a conflict with Iran could conclude swiftly. However, Iran's joint military command warned it would act to disrupt trade flows in the Gulf, the Sea of Oman, and the Red Sea should the U.S. blockade of its ports persist.
Optimism regarding a diplomatic resolution has helped the STOXX 600 recover from its March lows, but concerns over the impact of surging oil prices have caused European equities to underperform Wall Street.
"European companies are heavily dependent on oil prices. Major exporters, such as Germany, are suffering (...) and that is having a negative impact on European markets," said Axel Rudolph, senior market analyst at IG Group.
"That is why they are underperforming. No one anticipates oil prices dropping in the short term, even if a peace agreement were reached tomorrow."
Furthermore, corporate results remained a primary focus for investors.
Hermes plummeted 8.2% after the French luxury group reported a decline in first-quarter sales linked to the conflict in Iran.
Sales at Gucci, Kering's flagship Italian brand, retreated 8% in the first quarter compared to the previous year. Shares in the luxury fashion group sank 9.2%.
The luxury sector led losses with a 2.5% decline and remains the worst-performing sector year-to-date.
The technology sector eased 0.3%. ASML fell 4.2%, weighing on the sector, even after the chipmaking equipment supplier raised its revenue guidance for 2026.
(Reporting by Ragini Mathur and Twesha Dikshit; editing by Manuel Farías)
