The global share sell-off has deepened, the dollar has strengthened and gas prices have surged again as investors reconsidered the economic impact of the escalating conflict in the Middle East.

The FTSE 100 fell for a second day, dropping 3.29 per cent to 10,427.63 on Tuesday after sharp falls in Asia, where Japan’s Nikkei fell 3 per cent and South Korea’s Kospi lost 7.2 per cent. Markets on the Continent were also lower, and Wall Street exchanges are expected to open down.

Wall Street opened sharply lower and by late morning in New York on Tuesday indices were headed for their worst day since October. The S&P 500, the most broadly based US equity index, was down 1.8 per cent at 6,755.74 while the technology-heavy Nasdaq Composite was 1.9 per cent lower at 22,314.76. The Dow Jones industrial average had fallen 2 per cent to 47,930.89.

UK natural gas prices rose again as Iran’s Revolutionary Guards said the Strait of Hormuz was closed to marine traffic. Britain’s benchmark gas price, NBP, rose 36per cent to 155.89p per therm after a more than 50 per cent jump to 122p per therm on Monday when retaliatory attacks forced major LNG supplier Qatar to halt production. The price rise eased back in later trading and was up 25 per cent by mid-afternoon.

The strait is a critical chokepoint for flows of both oil and gas from the Middle East. Supertanker shipping costs have surged to a record $400,000 a day. Brent crude, the global benchmark oil price, was trading at $80.76 per barrel, up 7.9 per cent on the day.

Analysts warned that sustained energy rises could hit corporate earnings and stoke global stagflation fears.

“For Western Europe, the most notable development is another surge in natural gas prices… which is bringing back quite a lot of fears of potentially a repeat of what we saw in 2022, when Russia invaded Ukraine,” George Moran, European macro strategist at RBC Capital Markets, said. “It feels like the market is interpreting this as much more of an inflationary shock than a growth shock. Of course, it could still have a growth impact.”

Jamie Dimon, the JPMorgan Chase chief executive, on Monday cautioned investors against “excessive exuberance” and “complacency”, fearing market sentiment has decoupled from a rapidly destabilising global landscape. At the bank’s annual global leveraged-finance conference, he called persistent inflation “the skunk at the party”.

Dimon, who has argued that geopolitical instability has been a threat to global order since Russia invaded Ukraine, said: “I think the probabilities of something going south are more than other people think. I think inflation will cause the economic downturn.”

US oil companies, including Exxon Mobil saw their shares hit, and the biggest US oil producer was down 1.8 per cent. Chevron, too, was down, by 0.4 per cent while ConocoPhilips was down 0.25 per cent.

Goldman Sachs analysts believe the market is underpricing the risk of a prolonged blockade.

The dollar, a popular investment in times of uncertainty, strengthened further against most major currencies, with the pound declining 0.8 per cent to trade below $1.33.

The dollar index, which measures the US dollar against a basket of currencies including the pound and the euro, was up 0.85 per cent at 99.39.

The price of gold has fallen 3 per cent to 5,136.61 an ounce after rising back above $5,400 on Monday. It remains well shy of the record of $5,594.82 on January 29.

Traders are pricing in a 74 per cent chance that the Bank of England will cut rates later this month, down from about 78 per cent last week.

The possibility of fewer near-term interest rate cuts led investors to sell government bonds, pushing up bond yields, which move inversely to prices. Yields on UK goverment bonds rose across the curve with the 10-year gilt up 2 basis points to 4.5 per cent, having been at 4.23 per cent before the weekend. Higher yields reduce the relative appeal of owning equities.

There were only two risers in the FTSE 100 in early afternoon trading, with BP buoyed by higher oil prices.