European shares fell on 'Monday, as hopes of a quick resolution to the Middle East conflict faded after the failure of U.S. - Iran negotiations and Washington's decision to impose a blockade in the Strait of Hormuz.

As of 0718 GMT, the pan-European Index was down by 0.7% to 610.44.

The regional bourses also traded in negative territory. Germany's DAX fell 1% while London's FTSE 100 dropped 0.4%.

Investors' anxiety increased as the U.S. announced its plans to blockade strategic passages, threatening Iranian oil exports. Diplomatic efforts between Washington and Tehran had failed to yield any breakthroughs in the ongoing conflict.

Oil prices rose above $100 per barrel, rekindling inflation fears that had just recently started to subside.

The decline follows a rally last week when the STOXX 600 rose 3% amid optimism about a temporary U.S. - Iran ceasefire. This helped recoup losses since hostilities started on February 28.

The energy stocks gained 0.8% on the backs of rising oil prices.

Travel and leisure companies led the losses with a 1.9% decline.

The benchmark index was also heavily impacted by the banks and industrials, which fell 1.5%?and 1% respectively.

Investors now expect a possible shift in the policy of the European Central Bank. They are expecting a?rate hike rather than a prolonged pause.

According to LSEG data, markets are currently pricing in a rate increase of nearly three quarters of a point by the end year.

(source: Reuters)