The FTSE 100 index is down more than 1% to leave the top flight back where it started the year.
The decline of 97.8 points to 7386 was in line with the performance of other European markets after Russia sent troops into breakaway regions of eastern Ukraine.
Shares in Russia steel producer Evraz slid 6% and British Airways owner IAG fell 5% or 8.5p to 150.4p amid the combination of higher fuel prices and potential economic disruption resulting from the conflict.
Other fallers in London included HSBC, which dropped 2% after today’s big jump in 2021 pre-tax profits to $18.9 billion (£13.9 billion) came in short of City expectations. The turnaround in its performance was driven by a release of credit impairments taken the previous year.
Shell featured on a shortened risers board after today’s surge in oil price, with medical devices firm Smith & Nephew also 1% higher after posting annual results.
The FTSE 250 index fell 1.8% or 370.56 points to 20,726.63, with engineering group Wood down 15% after reporting a $100 million (£73.7 million) exceptional charge in relation to a legacy contract for the US army. It has also delayed the publication of its full-year results.
Inflation risk as oil surges
Capital Economics has highlighted a worst-case scenario where a Russia-Ukraine conflict sends oil to between $120 and $140 a barrel.
It says this has the potential to add around two percentage points to inflation and provides policymakers with more reason to raise interest rates.
Chief economist Neil Shearing also warns that Ukraine risks are yet to be priced into stock market valuations.
He said: “Most of the sell-off in global equities this year can be attributed to the hawkish shift by the world’s major central banks.
“This suggests that there is still significant downside for global stock markets (and upside for safe havens, including US Treasuries) if the conflict escalates. It could also reverse this year’s pattern of European equities outperforming those in the US.”
Ukraine escalation hits markets
Brent crude oil is trading above $97 a barrel after Vladimir Putin sent troops into two rebel-held regions in eastern Ukraine.
The overnight increase of 2% took Brent’s price to a new seven year high amid fears that a full-blown conflict will cause major disruption to supplies. Russia, which has been threatened with major sanctions, is the world’s second largest oil exporter.
The price of gold also rose as investors hedged against the geopolitical risk, with the precious metal at close to its highest level in a year at over $1,900 an ounce.
The FTSE 100 index finished in negative territory last night and is expected to open at least 54 points lower at 7430. US markets were closed yesterday for Presidents Day but are due to fall sharply when traders return later today.
US futures are pointing to a 1.5% decline for the Dow Jones Industrial Average and 2.6% slide for the tech-focused Nasdaq.
Michael Hewson, chief market analyst at CMC Markets, said: “After last night’s laying down of the gauntlet by Putin, the ball is now firmly in Nato’s court, with the very real prospect that sanctions may not be enough.”
The MOEX Russia equity index fell yesterday more than 10% in its worst day since March 2014, on top of heavy declines at the end of last week. Russia’s 10 year bonds also jumped by a significant 0.8% in their biggest daily move higher since December 2014.