12/03/2026 03:48 AST
Despite escalating geopolitical tensions in the Gulf that have rattled global energy markets and financial assets, the region's economies and capital markets remain well positioned to weather the turbulence, according to a new outlook from Mashreq Capital.
The investment firm says the coming weeks will be critical in determining how global markets adjust to the crisis, but strong fundamentals in the Gulf - particularly in the UAE and Saudi Arabia - could help anchor stability even as investors navigate heightened volatility in oil prices, equities and bond markets.
In its latest geopolitical overview, Mashreq Capital noted that the first week of March triggered sharp adjustments across global markets after military operations intensified across the Middle East and uncertainty deepened over the Strait of Hormuz - the world's most important oil shipping corridor.
Philip Philippides, chief executive of Mashreq Capital, said the crisis has forced investors to reassess geopolitical risk, but the region's structural strengths could help cushion the impact. "The speed and breadth of developments have clearly pushed geopolitical risk back to the forefront of global markets," Philippides said. "At the same time, the Gulf's strong fiscal buffers, resilient financial systems and strategic role in global energy markets provide a foundation of stability as the situation evolves."
Mashreq Capital analysts say the crisis could evolve along several possible trajectories. A diplomatic shift back toward negotiations would likely trigger a rapid unwind of the war premium that has been built into energy prices and financial markets.
"If diplomacy re-emerges, we could see a meaningful reversal of current market positioning," said Andreas Anthis, head of Multi Asset and Absolute Return at Mashreq Capital. "Oil prices would likely fall, inflation expectations would moderate and global equities could rebound as uncertainty fades."
However, if tensions remain elevated for an extended period, markets may need to adapt to a more persistent geopolitical risk premium.
Energy consultancy estimates suggest disruptions in the Gulf could temporarily affect as much as 15 per cent of global oil supply, potentially pushing crude prices above $100 a barrel if shipping constraints persist.
Global markets have already begun reacting to the volatility. Regional equities have diverged in performance depending on export exposure and liquidity conditions.
Saudi Arabia's stock market rose roughly 5 per cent over the past week as higher petrochemical and fertiliser prices boosted key exporters, while Oman's market gained more than 3 per cent.
UAE markets faced heavier pressure as banking and real estate stocks retreated amid trading volatility. Dubai's benchmark index declined about 9 per cent during the week, while Abu Dhabi slipped more than 5 per cent.
Local exchanges briefly suspended trading earlier in the week before reopening with tighter volatility controls, reducing daily fluctuation limits to 5 per cent from 10 per cent in an effort to stabilise markets.
Despite the market swings, Mashreq Capital believes the Gulf's core economies remain resilient from a credit perspective.
Amol Shitole, head of Fixed Income at Mashreq Capital, said sovereign balance sheets across the Gulf Cooperation Council continue to provide a strong anchor for regional debt markets. "Core GCC economies such as the UAE, Saudi Arabia, Qatar and Kuwait benefit from robust external balances, low debt-to-GDP ratios and strong credit ratings," Shitole said. "These factors have helped contain volatility in sovereign bond markets despite the broader geopolitical uncertainty."
Credit default swap spreads for Abu Dhabi and Saudi Arabia have widened only modestly in recent weeks, rising about 13 basis points and 12 basis points respectively - a signal that investors still view these sovereigns as relatively stable compared with many emerging markets.
However, liquidity conditions have become more selective in parts of the regional credit market. Bid-ask spreads for some high-yield issuers, particularly in the real estate sector, have widened significantly as investors adopt a more cautious stance.
Ibrahim Masood, head of Equities at Mashreq Capital, said equity investors are increasingly favouring sectors that benefit from elevated energy prices and defence spending. "In a period of heightened geopolitical tension, energy producers, defence companies and select commodity sectors tend to outperform," Masood said. "Conversely, industries with high fuel exposure - such as airlines, transport and logistics - may face ongoing pressure."
The broader global implications could also be significant if the conflict persists. Elevated oil prices typically push inflation higher, complicating central bank efforts to reduce borrowing costs.
If energy prices remain elevated for an extended period, expectations for interest-rate cuts in major economies could be delayed, keeping financial conditions tighter and slowing global growth.
At the same time, safe-haven assets continue to attract investor interest. The US dollar has strengthened amid the uncertainty, reflecting both its reserve currency status and America's relative energy independence, while gold has remained near record highs.
Still, Mashreq Capital believes markets could stabilise relatively quickly if geopolitical tensions begin to ease. "If the conflict shifts toward diplomacy and supply routes reopen, we could see a swift rebalancing across global markets," Anthis said. "The removal of uncertainty would likely support equities, reduce energy prices and restore confidence among investors."
Khaleej Times
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