Gulf markets are splintering as the Iran war continues. Here's what to know

• Saudi Arabia's Tadawul index has been boosted by oil prices above $95 per barrel and Saudi Aramco's ability to export via Mediterranean pipelines, bypassing the Strait of Hormuz flashpoint
• Dubai's DFM General Index has fallen 16% since March 1, hit hardest due to sensitivity to real estate markets and broader geopolitical events, though it posted its biggest single-day gain since December 2024 this week at 4.2%
• Analysts warn dollar-pegged Gulf economies face inflation risks and urge investors to focus on quality assets rather than aggressive positions until de-escalation provides better visibility

Summary: Gulf Markets Diverge Amid Iran Conflict

Market Performance:

Gulf markets have sharply diverged since the Iran war began on February 28. Since March 1, Oman's index has surged 9.3% and Saudi Arabia's Tadawul has gained 5.8%. In contrast, Dubai's DFM General Index has plunged nearly 16%, Qatar has declined 4%, and Bahrain's BAX has fallen 7.2%.

Key Drivers:

Saudi Arabia's outperformance is attributed to its correlation with energy markets and spiking oil prices. Brent crude futures remain above $95 per barrel, benefiting major Saudi energy companies, particularly Saudi Aramco, which can export oil via Mediterranean pipelines, bypassing the Strait of Hormuz—a critical conflict flashpoint.

Oman has attracted safe-haven flows, with investors drawn to its Vision 2040 diversification initiative away from oil dependency. Dubai, more sensitive to real estate markets and broader geopolitical events, has been hardest hit.

Market Outlook:

Strategists recommend cautious positioning, focusing on quality assets with resilience in uncertain markets. Dubai's index showed signs of recovery this week, gaining 4.2% Wednesday—its largest intraday advance since December 2024—closing up 2.4% for the week on real estate and banking gains.

Risks:

For Gulf economies, dollar-pegged currencies pose inflation risks amid rising interest rates. Analysts warn that attacks on energy infrastructure or water desalination facilities would signal escalation. Traditional safe havens like gold are behaving more like risk assets due to dollar strength.

Opportunities:

Despite volatility, Saudi Arabia's pre-IPO space continues attracting investor interest, though experts caution against excessive risk-taking until clearer de-escalation signs emerge.