European shares dropped on Monday as expectations of a swift resolution to the Middle East conflict faded following the breakdown of U.S.-Iran negotiations and Washington's decision to impose a blockade around the Strait of Hormuz.

The pan-European index was ‌down 0.7% ⁠at ⁠610.44 points, as of 0718 GMT.

Regional bourses were also trading in ​negative territory, with Germany's DAX down 1%, while London's FTSE 100 fell ​0.4%.

Investor anxiety escalated as the U.S. announced preparations to blockade the strategic passage, threatening to choke off Iranian oil ​exports after diplomatic efforts between Washington and ⁠Tehran failed ‌to produce any breakthrough in ending ​the ongoing ​war.

Rising tensions pushed oil prices above $100-per-barrel mark, reigniting ⁠inflation concerns that had only recently begun to ​subside.

The downturn follows a rally from last ​week, when the STOXX 600 gained 3% on optimism surrounding a temporary U.S.-Iran ceasefire, helping recoup some losses since hostilities began on February 28.

Energy stocks were the gainers, rising 0.8%, on the back of soaring oil ‌prices.

All other sectors tumbled into negative territory, and travel and leisure companies led losses with ​a 1.9% drop.

Banks ​and industrials ⁠also weighed heavily in the benchmark index, down 1.5% and 1%, respectively.

Investors are now bracing for a potential shift ​in policy from the European Central Bank, with expectations for interest rate hikes rather than a prolonged pause.

Markets are currently pricing in nearly three 25-basis-point rate increase by year-end, according to LSEG-compiled data.