Shares in London have plummeted in early trading, with the FTSE 100 index of shares plunging 8%.
It comes after big falls in Asia, with Japan's Nikkei 225 index down 5% while Australia's ASX 200 slumped 7.3%, its biggest daily drop since 2008.
Markets have been rattled by the threat of a price war between oil exporting group Opec and its main ally Russia, which sent oil prices down by 30%.
The wobble compounds fears over the effect of coronavirus on the economy.
With oil prices crashing on Monday, energy firms have seen some of the biggest share price falls.
Euro STOXX 50 futures fell 10%, on course for their worst day on record. Futures are bets on stock markets and trade outside normal market hours. Traders use them as a barometer for how a market will perform when it opens.
Asian investors also reacted to a slump in Chinese export figures and the shrinking of the Japanese economy.
In China, the benchmark Shanghai Composite share index fell more than 2%, while in Hong Kong, the Hang Seng index sank 3.5%.
On Saturday, China released import and export figures for the first two months of the year. Exports fell by 17.2% while imports dropped by 4%. This gave the Chinese economy a trade deficit of $7.1 billion as it struggles with the economic impact of the coronavirus outbreak.
"China may slowly be returning to work, but manufacturers will now likely be facing an international fall in demand, with coronavirus now well-established outside of Chinese shores," said Jeffrey Halley, senior market analyst at broker OANDA.
The Saudi price war could drive oil prices below $30 a barrel for the first time since the 2016 oil price crash, according to market experts at S&P Global Platts.
The price reporting agency said a “reasonably aggressive” stance from the Saudis could see the Kingdom raise its production from 9.75 million barrels a day in the first quarter to 10.25 million barrels per day in 2Q.
But a “more aggressive and offensive” stance could see Saudi Arabia’s oil output surge to highs of 11 million barrel a day, enough to drive the oil price into the $20s for the first time since early 2016 if the coronavirus is not contained.
Meanwhile Russia is expected to raise its oil production by 300,000 barrels a day within the next three months before US shale oil producers are forced out of the market by lower prices.