No FTSE 100 stock has fallen as sharply as IAG (LSE:IAG) today — down 6%, it’s shares have slumped to their cheapest level since December.
Investors have reacted to the erupting conflict in the Middle East and its subsequent disruption to airlines. Now below 400p per share, IAG’s share price could continue falling in the event of a drawn-out war.
So is this a dip-buying opportunity for long-term investors to think about?
What’s happened?
To recap, on Saturday the US and Israel launched military strikes on targets across Iran and Lebanon, prompting retaliatory attacks across the region. Iranian drone and missile strikes have hit targets across regional hotspots including Saudi Arabia, Qatar and the United Arab Emirates, prompting major flight cancellations.
British Airways has cancelled flights to Tel Aviv and Bahrain until mid-week. Furthermore, it’s said services between London and Abu Dhabi, Amman, Bahrain, Doha, Dubai and Tel Aviv could be disrupted for several days.
Flights have also been affected across IAG’s other airlines Iberia and Vueling.
Multiple problems
It’s not just the flight disruptions themselves that have rattled investors. The Middle Eastern conflict is causing other problems, like driving up oil prices and subsequently fuel costs. Brent crude has hit its highest in more than a year today just below $80 a barrel on Monday.
Analysts reckon prices could surge through $100 per barrel if major supply issues emerge. Around a fifth of global oil supply comes through the Stait of Hormuz, where three tankers were attacked by Iran at the weekend.
With airlines having to reroute flights to and from non-Middle-East destinations, too, in response to airspace closures, the problem of soaring fuel costs takes on another dimension.
Will sales keep falling?
The Middle East forms only a small part of IAG’s global footprint. But as you can see, the potential ramifications of this tragic regional conflict are enormous. And the problem is it could prove a drawn-out affair lasting weeks or months, pushing airline stocks steadily lower.
It adds a further layer of risk for the FTSE 100 company. Last year’s full update showed profits at record levels, reflecting in part IAG’s successful pivot to offering more premium seats. But sales are cooling sharply and actually dropped 0.8% in the fourth quarter of 2025. As economic uncertainty and now geopolitical volatility increases, this could become a growing threat for the business.
Are IAG shares a potential buy?
On the plus side, the strong brand power of IAG’s flagship carriers could help it navigate a broader industry downturn. It can also expect a further boost from its premiumisation drive as new aircraft are delivered.
So are IAG shares worth considering following today’s price drop? They certainly look dirt cheap on paper — at 399p, they trade on a price-to-earnings (P/E) ratio of 6.5 times.
However, I firmly believe this low multiple is a fair reflection of the mounting risks facing IAG and its share price right now. It might be cheap, but I’d rather find other stocks to buy like these.
