The pan-European STOXX 600 index slipped around 2%.
Early mining and oil and gas sector gains were outweighed by a steep drop in banking stocks on the sense that interest rate hikes might now get delayed.
The index for euro zone banks was down over 3% by early afternoon.
Oil prices surged as concerns over supply disruptions and related sanctions outweighed talks of a coordinated global crude stocks release.
Brent crude futures were up about 6% to almost $104 a barrel and U.S. benchmark futures also hit the $100 a barrel mark.
Meantime, the rouble fell further on Tuesday, while the dollar edged higher and the Swiss franc hit a seven-year high, as investors sought out the safe-haven currency.
The Russian currency was down around 2% by lunchtime, trading at just above 99 per dollar, a day after it collapsed to a record low of 120 per dollar.
Earlier on Tuesday it had recovered some of those heavy losses, helped by an emergency rate hike by Russia's central bank.
Still, the rouble was down almost 30% from its best levels this year.
Trading on Russia's main stock exchange remains suspended.
