The Spanish stock index IBEX 35 lost ground on Monday as markets grew uneasy over escalating geopolitical tensions, with investors awaiting Tehran's response to the United States' attack on Iran over the weekend.

While the short-term implications are clearly negative for equity markets--driven by fears of destabilization in the Middle East and rising oil prices--many uncertainties remain regarding the development, duration, and consequences of the conflict.

Analysts at Bankinter suggest that the most likely outcome is the destruction of Iran's military nuclear program, an attempt by Iran to block the Strait of Hormuz--thereby driving up crude prices--and a shift towards a protracted hybrid war in the region, featuring militia attacks on American bases and Israeli interests.

"In practical terms, for the market, this means a higher risk premium due to geostrategic concerns and upward pressure on inflation from oil," they note.

"However, safe-haven bond purchases and the behind-the-scenes support of central banks with their massive balance sheets will drive bond yields even lower, preventing stock markets from suffering severe declines, as would typically occur under normal circumstances," they explain, according to comments shared on their Telegram channel.

Against this backdrop, macroeconomic and monetary events have taken a back seat. Nevertheless, the main reference points for the week in these areas include the PMI activity indices on both sides of the Atlantic (Monday), Germany's IFO business confidence indicator (Tuesday), and, as the highlight, the US consumption deflator (Friday).

As of 0705 GMT on Monday, Spain's IBEX 35 was down 92.40 points, or 0.67%, at 13,757.90, while the pan-European blue-chip index FTSE Eurofirst 300 slipped 0.42%.

In the banking sector, Santander fell 0.81%, BBVA dropped 0.77%, Caixabank slid 1.36%, Sabadell lost 0.48%, Bankinter declined 0.37%, and Unicaja Banco was down 0.64%.

Among major non-financial stocks, Telefónica retreated 0.66%, Inditex slipped 0.59%, Iberdrola lost 0.33%, Cellnex fell 0.49%, while oil company Repsol rose 1.01%.

(Reporting by Tomás Cobos; editing by María Bayarri Cárdenas)