Stocks climb, oil reverses gains amid Gulf flare-ups

24/06/2025 23:44 AST

Gulf stock markets gained ground on Monday as oil prices surged to a five-month high, driven by mounting geopolitical tensions following US strikes on Iranian nuclear sites. Investor anxiety has deepened over the possibility of an Iranian response, especially amid growing fears that Tehran may attempt to disrupt or block the critical Strait of Hormuz-a conduit for more than 20 per cent of the world's oil supply.

Brent crude rose sharply in the wake of the US offensive, which marked a dramatic escalation in the ongoing Middle East conflict. This spike in oil prices, while boosting energy-exporting economies in the Arab Gulf, also reignited global concerns over inflation, supply chain fragility, and stagflation risks. However, gains were reversed later in the day. Around 7pm UAE time, Brent was down 0.93 per cent to $76.29, while West Texas Intermediate fell 0.99 per cent to $73.11.

While investors across global markets adopted a cautious stance, the response in Gulf equity markets was more upbeat. Saudi Arabia's benchmark index advanced 0.7 per cent, led by gains in Al Rajhi Bank and Saudi Arabian Mining Company. Dubai's main index rose 1 per cent, with blue-chip developer Emaar Properties jumping 2.4 per cent and Dubai Islamic Bank gaining 1.7 per cent.

Analysts attributed this relative optimism to speculation that direct US involvement might pressure Iran towards a diplomatic resolution. "Regional markets are trying to price in both the risks and opportunities from the escalation," said Hani Abuagla, senior market analyst at XTB MENA. "Some investors are betting that the crisis may force stakeholders back to the negotiating table."

Despite the uptick in regional equities, global markets were jittery. US stock futures edged lower on Monday. Futures tied to the Dow Jones Industrial Average slipped 114 points, or 0.2 per cent, while S&P 500 and Nasdaq-100 futures both fell by 0.2 per cent. Last week, the S&P 500 posted a 0.15 per cent loss-its second consecutive weekly decline.

Josh Gilbert, market analyst at eToro, said investors are approaching the week with a "heightened sense of caution." He noted that markets are witnessing a classic flight to safety, with equity futures down, bitcoin sliding below $100,000, and gold and oil prices trending higher. "Until we see signs of de-escalation, this defensive positioning will continue," Gilbert said. "This kind of geopolitical uncertainty is becoming part of the new normal."

The key risk factor, he emphasised, remains the Strait of Hormuz. "Any disruption to that key artery could lead to a sharp spike in oil prices in the short term," Gilbert said, adding that while the UAE and other Arab Gulf exporters might benefit from higher crude prices, broader market volatility and inflationary pressures would weigh heavily on the global economy.

Tavis McCourt, analyst at Raymond James, echoed this sentiment, warning that an escalation would likely result in a short-term rise in oil prices, interest rates, and the US dollar, fuelling fears of stagflation. "Conversely, signs of resolution could revive risk appetite and reward dip buyers," he wrote in a note.

Vijay Valecha, chief investment officer at Century Financial, said crude prices briefly touched their highest levels since January, underpinned by expectations of Iranian retaliation. He pointed out that Iran's parliament had approved measures that could lead to blocking the Strait of Hormuz. "Markets initially reacted to the headline risk, but are now bracing for Iran's next move," he said. "Even limited interference with tanker traffic could significantly reprice geopolitical risk."

Beyond immediate market moves, analysts warned of wider economic fallout. A disruption to the Strait would not only hurt global oil supply but could also deal a blow to Iran's own exports. Even without a full closure, sustained tension could upend shipping insurance costs, delay deliveries, and increase energy and food prices across importing nations.

In particular, countries in Asia-heavily dependent on oil from the Arab Gulf-are expected to bear the brunt of rising costs. "There is no real substitute for Gulf oil in the short term," said Joaquin Vespignani, associate professor of finance at the University of Tasmania. "For Indo-Pacific countries, higher import bills could force budget cuts elsewhere. Inflation will rise while incomes stagnate-a double blow for consumers."

He warned that nations with limited fiscal space could struggle to maintain current levels of infrastructure spending and welfare programs. "This shock will ripple far beyond the Gulf, straining economies and consumers alike," he added.