Oil prices slid during a cautious trading day as President Donald Trump said the US no longer needs Iranian oil and attempted to avoid further escalation between the nations.
UK-listed travel firms rebounded after being pressurised by oil price increases over the past week, while oil majors conversely closed the day in the red.
The FTSE 100 edged into positive territory as news that Iran launched missile strikes against US forces in retaliation for the assassination of General Qassem Soleimani gripped traders.
London’s top flight closed 1.08 points higher at 7,574.93 at the end of trading on Wednesday.
President Trump said Iran “appears to be standing down” in a short speech on Wednesday afternoon, slightly easing concerns among traders.
David Cheetham, chief market analyst at XTB, said: “An eagerly anticipated speech from Donald Trump caused a clear market reaction with the US president choosing to avoid any further escalation between Washington and Iran.
“The statement was in keeping with his tweet in response to the retaliatory attacks carried out by Iran overnight and for now investors can breathe a big sigh of relief.”
The price of oil plummeted lower on the back of cooling tensions, while an increase in stockpiles in the latest Energy Information Administration report also weighed on prices.
The price of a barrel of Brent crude oil fell 3.48% to 65.98 US dollars.
The European markets moved higher towards the end of trading after Mr Trump’s statement.
The German Dax increased by 0.76% while the French Cac moved 0.31% higher.
Across the Atlantic, the Dow Jones opened lower before shooting upwards as market nerves calmed.
Meanwhile, sterling was firm but slipped lower against the resurgent dollar, which was buoyed by the strong session on Wall Street.
The value of the pound decreased 0.08% versus the US dollar at 1.311 and rose 0.18% against the euro at 1.178.
In company news, easyJet led the risers on the FTSE 100 as airlines were buoyed by the sliding price of oil.
Shares in the airliner were up 37.5p at 1,407.5p.
Supermarket giant Sainsbury’s slipped lower after it revealed lower sales over its Christmas quarter as a tough toy and video games market offset a robust performance in food and clothing.
The group, which also owns the Argos chain, said like-for-like retail sales fell 0.7%, excluding fuel, in the 15 weeks to January 4. Shares slid 3.8p to 227.2p at the end of trading.
High street baker Greggs closed higher after it hailed a “phenomenal” trading year and handed staff members around £300 each as part of a £7 million windfall payment to employees.
Shares rose 32p to 2,434p after Greggs said pre-tax profits would be ahead of expectations.
Elsewhere, Travelex-owner Finablr saw shares plummet as the currency firm continues to be without computer systems following a ransomware attack. Shares closed down 28.5p at 126p.
The biggest risers on the FTSE 100 were EasyJet, up 37.5p at 1,407.5p, Hargreaves Landown, up 39.5p at 1,911.5p, Meggitt, up 13.8p at 673.2p, and BT Group, up 3.82p at 195.9p.
The biggest fallers on the index were NMC Health, down 237p at 1,257.5p, Tui, down 44.6p at 927.4p, British Land, down 15.8p at 602.8p, and Morrisons, down 4.7p at 190.8p.
Henry Saker-Clark is PA City Reporter.