Ukraine peace hopes wipe billions from FTSE 100 as defence and oil stocks slide

Hopes for a negotiated end to the war in Ukraine knocked billions off the FTSE 100 on Friday as investors rotated away from defence stocks and oil majors amid renewed talk that a peace deal could be finalized in coming days.

Britain’s blue-chip index ended down 0.7%, or 66.52 points, at 9,684.79, after a session in which the lender, miner and insurer indices were overshadowed by the roll of war-related headlines. Among the heaviest falls were the UK’s largest defence contractor, BAE Systems, which slipped 1.7% to 1,664.5 pence, and Babcock, which dropped 3.6% to 1,214 pence. Rolls-Royce weakened 1.4% to 1,098 pence and Melrose, owner of GKN Aerospace, shed 1.9% to 550 pence. Across Europe and the United States, a wave of declines followed, with Germany’s Rheinmetall down 4.1%, Sweden’s Saab off 4.8% and Italy’s Leonardo down 3.9%. In the United States, Lockheed Martin traded nearly 2% lower after the London close, with Raytheon and Northrop Grumman also posting declines as the session progressed.

Brent crude briefly fell as much as $1.84, or 3%, to $58.72 a barrel, sliding below $60 for the first time since May as markets weighed the prospect that sanctions on Russia could be eased if a peace accord emerges. The move in oil prices helped push the FTSE 100’s energy heavyweights lower; Shell slipped 2.7% to 2,626.5 pence and BP fell 3.4% to 422.5 pence as traders priced in the possibility of higher near-term production and a softer oil market depending on how the peace process evolves. The combined declines for the FTSE 100’s defence and oil sectors totaled about £9 billion, a reminder of how closely tied the market is to geopolitical risk and energy expectations.

The market reaction reflected traders’ reassessment of risk premia as Ukrainian President Volodymyr Zelensky said proposals being negotiated with U.S. officials could be finalized within days, signaling potential progress toward a cease-fire or peace framework. US President Donald Trump, commenting on the situation, said the parties were closer now than ever before. Any agreement would still face potential hurdles in Moscow, where the Kremlin could push back against post-war security guarantees for Ukraine. While a potential peace deal would be a positive development in the longer term, many investors expect near-term volatility as the terms of any accord are tested.

The price action underscored a broader market dynamic: even as the continent braces for the possibility of a more stable peace, investors are weighing how energy and defence sectors would fare in a post-conflict world. Analysts noted that even with a potential de-escalation, Europe faces ongoing security and procurement needs that could sustain demand for arms and related industries. Oil markets, in particular, could remain volatile as supply and sanctions questions come into play, depending on how any sanctions regime is adjusted and how quickly Russian exports resume normal levels.

Dan Coatsworth, head of markets at AJ Bell, said that while a peace deal would be positive for the global economy after almost four years of fighting, it would carry “negative consequences for the oil and defence sectors” as investors recalibrate portfolios and the narrative around these industries shifts. “Oil prices could be pressured further if more supplies are fed into the network, which would be a drag on the oil complex,” he said. He also noted that a peace scenario could alter the fundamental investment case for defence contractors, pushing some investors to reassess valuations in light of a potential longer horizon of reduced risk exposure.

Industry and market professionals stressed that any lasting peace would not erase the need for defense modernization or energy resilience in Europe. Even in a world with reduced conflict, European governments are widely expected to continue elevated spending on rearmament to deter potential threats and reassure allies. The immediate market reaction, however, suggests traders are repositioning for multiple possible paths—from a swift resolution to a drawn-out negotiation that keeps volatility elevated.

As investors monitor Kyiv’s and Washington’s negotiation posture, they also watch Moscow for signals about sanctions, response time, and potential shifts in Russian oil and gas flows. The oil market’s sensitivity to sanctions expectations means any credible easing of restrictions could feed more supply into global markets, potentially capping gains for energy equities in the near term. In the near term, the market narrative remains unsettled: a peace deal could unlock geopolitical relief and stability, but it could also reprice risk in sectors tied to energy and defence—the very areas that have led the market’s declines in recent sessions.

The day’s trading activity left the FTSE 100’s performance in a cautious lane, with trading desks noting the index’s sensitivity to headlines that could either spark relief rallies or renewed selling pressure. In the broader outlook, investors will be watching for further clarity on any framework for peace, U.S. and European policy responses, and how the dividend and earnings outlooks for large-cap energy and defence names adapt to a potentially altered geopolitical and economic environment.