Gulf markets have held steady despite U.S. and Israeli strikes on Iran at the end of February, even as the conflict disrupts shipping through the Strait of Hormuz and unsettles global energy markets.
Investors say the reaction across equities, credit, and capital markets has been far more measured than expected. The calm, however, will depend on just how long the conflict lasts.
Templeton Global Investments argues that the initial instinct in such circumstances is typically to move into defensive positioning. But “[we also see signs of a rotation into sectors where prices may increase, such as materials and energy, as well as in some of the defensive sectors,” Salah Shamma, head of investment of MENA Equities at Templeton Global, said in a note the firm sent to clients.
Investors are moving out of areas that are more exposed to economic disruption, including tourism, hospitality, and real estate, he added.
Akber Khan, acting CEO at Al Rayan Investment, said the 15 percent drop in Dubai equities in March is understandable given its reliance on tourism and trade, while Saudi’s 2 percent rise and Oman’s 4 percent gain show investors favoring more insulated markets. “Valuations play a role, as Saudi equities had suffered in 2025 and are seen as far more defensive,” he said.
Bond Markets Remain Calm
The impact on GCC debt markets will depend largely on the war’s scope and duration, said Bashar Al Natoor, global head of Islamic Finance at Fitch Ratings. “The longer-term effects will depend on post-war market sentiment, activity, and accessibility,” he said.
Al Natoor noted that many GCC U.S. dollar sukuk and bond yields have widened to five‑year-high spreads, reflecting higher risk perceptions, but added that spreads still remain below pandemic levels.
“Dollar DCM issuances have been subdued, but there has been some activity in alternative funding channels such as syndicated loans and certificates of deposit,” he said. “Historically, GCC debt capital markets have rebounded relatively quickly following periods of heightened geopolitical tension, although the trajectory this time will depend on how developments evolve.”
A Dubai-based debt origination banker said some sectors are more exposed than others. Real estate, in particular, could face pressure because of its reliance on foreign capital, which may slow as geopolitical risk rises.
“Liquidity conditions have weakened across both sukuk and conventional bonds from most GCC countries since the war began,” noted Fitch’s Al Natoor. He added that trends across dollar-denominated GCC bonds have remained broadly similar.
Iran’s restrictions on shipping through the Strait of Hormuz, through which 20 percent of the world’s oil moves, have pushed the price of oil to record levels. In mid-March, natural gas prices spiked after an Iranian drone attack on Qatar’s main LNG facility. The attack reduced Qatar’s ability to export by around 17 percent and cost $20 billion.
In a client note, Magdalena Polan, head of emerging markets macro research at PGIM, the asset management arm of Prudential Financial, said the crisis raises questions about supply disruption and the effect on global inflation. Beyond energy, the war is disrupting the global movement of fertilizers and other critical petrochemical products. “Even the road to a positive outcome is very uncertain,” she said.
War Tests Strength of Gulf economies and Financial Centers
In March, Iran’s military threatened strikes against American and Israeli financial institutions in the region. In response, some international financial institutions and companies instructed their staff to work from home.
“With a shorter conflict, I think we’ll see a pretty resilient system,” said Robert Mogielnicki, senior resident scholar at Arab Gulf States Institute in Washington. “It is harder to say for a longer conflict.”
He added that deep sovereign wealth pools and centralized governments have helped Gulf states absorb geopolitical shocks.
“Gulf governments have to strike a tricky balance at the moment by aiming to reinforce economic resilience and business confidence amid the conflict, while also not wasting energy and resources trying to hit a moving target amid significant uncertainty,” he said
A spokesperson at ADGM, Abu Dhabi’s financial center, said operations continue normally.
“ADGM remains focused on supporting its community and the delivery of regulatory and business services,” said the spokesperson. “We are closely monitoring developments and remain in coordination with the relevant authorities.”
For now, investors are watching the trajectory of the conflict before making portfolio adjustments.
But this reset may ultimately serve as a test of the Gulf’s ambitions to position itself as a stable global financial hub. It’s a test it is passing — for now.
