Global markets tumble after US-Israeli strikes on Iran roil Gulf

Global markets swung sharply on Monday after US and Israeli military strikes on Iran killed Supreme Leader Ayatollah Ali Khamenei, prompting retaliatory missile and drone attacks across the Gulf and disrupting business, energy flows and financial centres in the region.

Iran launched strikes targeting Israel and Gulf states including the United Arab Emirates, Qatar, Bahrain and Kuwait, marking the most widespread regional escalation in years and challenging the Gulf's long-standing reputation as a stable hub for global capital.

Airports in Dubai, Abu Dhabi and Doha were shut or operated under severe restrictions after sustaining damage, while a berth at Jebel Ali Port caught fire following an aerial interception. The UAE federal labour authority advised companies to implement remote working arrangements through early March to keep employees away from open areas.

Stock markets across the region fell sharply. Saudi Arabia's benchmark index dropped more than 4% at one point before closing down 2.2%. The UAE closed its exchanges for two days in a rare move, and Kuwait suspended trading indefinitely. Markets in Egypt and Oman fell 2.5% and 1.4%, respectively.

The conflict has caused the most significant business disruption in the Gulf since the COVID-19 pandemic, affecting logistics, tourism and corporate activity during the holy month of Ramadan.

High-profile hospitality sites were hit. The Fairmont The Palm in Dubai was set ablaze and the Burj Al Arab sustained damage. Strikes also reached residential areas around Dubai Marina and Palm Jumeirah, threatening prime real estate assets and testing the emirate's image as an "insulated" business centre.

Corporate iftars and suhoors hosted by major entities such as Emirates and Mubadala were cancelled or postponed, disrupting a key networking season for relationship-driven dealmaking in the region.

Oil surges, shipping slows

Oil prices jumped on fears of supply disruptions and shipping bottlenecks around the Strait of Hormuz, which carries about one-fifth of the world's seaborne oil.

Brent crude rose roughly 9% early on Monday, briefly topping $82 per barrel, before trading around $77, up nearly 6% on the day. Year-to-date gains have climbed above 26%, with some analysts warning prices could reach $100 if the conflict persists.

Although the strait has not been officially closed, tankers have piled up as war insurance costs surged and reports emerged of three oil tankers being struck. The Iranian Revolutionary Guard said it had targeted three US and British vessels.

The spike in oil prices added to concerns about renewed global inflationary pressure, with higher energy costs acting as a tax on consumers and businesses worldwide.

Flight to safety

The escalation triggered a broad "risk-off" move in global financial markets.

Investors flocked to safe-haven assets. The Swiss franc rose to its strongest level against the euro in more than a decade, gold touched a four-week high, and the US dollar gained ground.

Risk-sensitive currencies fell. The South African rand weakened 1.4% to 16.16 per dollar, while South African government bond yields rose 8.5 basis points to 7.97%. The Australian dollar dropped 1.2% and the New Zealand dollar fell 0.8%. Sterling and the euro also weakened amid energy supply concerns.

Oil-linked currencies diverged. Norway's crown gained 0.7% on the back of higher crude prices, while the Japanese yen slipped 0.6% as traders weighed the cost of increased energy imports.

Central bank expectations shifted as well. The Bank of Japan is now expected to take a more cautious approach to interest rate hikes, while US Fed fund futures indicate a reduced likelihood of aggressive rate cuts in the near term.

Uneven regional impact

The economic impact across the Gulf appears uneven.

Oil exporters such as Saudi Arabia and Qatar could benefit from a temporary fiscal cushion as elevated crude prices boost state revenues. In contrast, the UAE's diversified economy, heavily reliant on tourism, real estate and financial services, faces more immediate pressure as airspace closures, travel advisories and infrastructure damage weigh on activity.

The United States, United Kingdom and European Union have issued updated advisories urging citizens to avoid non-essential travel to the region, adding to strain on the tourism sector.

Investors are also closely watching the Strait of Hormuz and the safety of regional infrastructure, key factors for hedge funds and global banks that have expanded operations in Gulf financial centres in recent years.

US President Donald Trump has indicated that the military campaign could continue for approximately four weeks, prolonging uncertainty.

Market participants are monitoring both the evolving military situation and upcoming economic indicators, including manufacturing surveys and vehicle sales data, for signs of how sustained volatility may affect global demand and investment flows.