Middle East stock markets moved modestly in the opening trading after the U.S.-Israeli military offensive against Iran began on Saturday, with J.P. Morgan concluding that only a limited amount of risk has been priced into regional equities so far.
In Saudi Arabia, the Tadawul All Share Index (TASI) climbed 0.6% on Tuesday, extending gains from a 0.13% rise in the prior session, as of 06:48 ET (11:48 GMT). Qatar’s QE Index closed down 0.7% on Tuesday after a sharper 4.3% drop on Monday. Exchanges in the United Arab Emirates were closed, and the U.S.-listed iShares MSCI UAE ETF (UAE) declined 3.5% in pre-market trade.
Commodity markets reacted more sharply. Brent crude rallied 8.5% to $84.34 a barrel from a pre-conflict close of $72.48, with J.P. Morgan forecasting an immediate move into the $80-$85 range as concerns about supply disruptions mounted.
Within Saudi listings, national champion Aramco rose 5% relative to its pre-war Thursday close alongside the oil price increase. By contrast, major Saudi lenders moved lower: Al Rajhi Bank slipped 3.9% and Saudi National Bank gave up 4.1%. Among tracked names, Elm Company experienced the steepest drop, falling 11.9%, and Qatar National Bank was down 4.8%.
Some of the steepest falls were driven by positioning rather than direct exposure to the conflict. Greek banks - Piraeus, Alpha and Eurobank - fell 7% and 6% respectively, deeper declines than their Saudi and Qatari counterparts despite carrying no direct exposure to the hostilities. J.P. Morgan attributed that divergence to crowded positioning, noting that Piraeus had risen 11% year-to-date before Monday’s session. The bank analysts posed a rhetorical question: "Should the present value of a Greek bank’s entire future earnings drop by more than those of a Saudi or Qatari bank because of attacks on Saudi refineries or the closure of Qatar’s gas fields?"
Foreign ownership patterns vary markedly across Gulf markets and have influenced the price action. J.P. Morgan and Bloomberg Finance L.P. data show Emaar Properties at 52.43% foreign ownership and First Abu Dhabi Bank at 24.61%. MSCI UAE’s average foreign ownership sits at 23.82%, compared with 11.56% for MSCI Saudi and 17.49% for MSCI Qatar. J.P. Morgan highlighted these differences as part of what is driving differential market responses.
On the trajectory of the conflict, J.P. Morgan’s base case anticipates fighting to continue for two to four weeks, concluding with the U.S. declaring victory and ceasing bombing operations, provided there is no significant deployment of ground troops.
The bank outlined the near-term mechanics of oil supply disruption. Vessel transits through the Strait of Hormuz slowed to a near standstill on March 1 - the first near-complete halt in its modern history - with export flows dropping to roughly 4 million barrels per day from an ordinary 16 mbd, according to Kpler data cited by J.P. Morgan. Alternative bypass pipelines in Saudi Arabia and the UAE can divert only 3.3 mbd, leaving approximately 15.8 mbd without alternative routes.
J.P. Morgan warned that Gulf producers could sustain output for no more than 25 days under a full Strait of Hormuz disruption before mandatory production shut-ins would be required. The bank added that if the conflict extends beyond three weeks, Brent crude could trade in a $100-$120 range. Iran’s retaliatory strikes have targeted U.S. military bases and urban areas including Dubai, though oil infrastructure has so far been spared.
Summary
- Regional equity moves were modest in early sessions after the offensive began, with Saudi stocks slightly higher and Qatari and UAE instruments weaker.
- Brent crude saw a sharp rise as traders priced in immediate supply risk; J.P. Morgan put an initial target range at $80-$85 per barrel and warned of $100-$120 if the conflict exceeds three weeks.
- Market reactions have been shaped by foreign ownership concentrations and crowded positioning in certain names, not solely by direct exposure to the conflict.
Key points
- Energy sector - Oil surged 8.5% to $84.34 a barrel from a $72.48 pre-conflict close, amplifying the impact on energy-linked equities such as Aramco, which rose 5% versus its pre-war close.
- Banking sector - Major Gulf banks showed mixed moves: Al Rajhi Bank and Saudi National Bank fell alongside Qatar National Bank, while Greek banks experienced outsized declines driven by positioning.
- Market structure - Markets with higher foreign ownership, notably UAE-listed names, showed heavier selling pressure, reflecting liquidity and investor base effects.
Risks and uncertainties
- Duration of fighting - If hostilities persist beyond three weeks, J.P. Morgan expects Brent could reach $100-$120, raising the prospect of broader economic and market disruption.
- Shipping and export flow disruptions - Vessel transit through the Strait of Hormuz slowed to a near standstill, reducing exports to roughly 4 mbd from a typical 16 mbd, with only 3.3 mbd of bypass capacity available.
- Production sustainability - Gulf producers could maintain full output for up to 25 days under a complete Hormuz disruption before forced shut-ins would be necessary.
Markets will likely continue to balance immediate geopolitically-driven commodity volatility against the degree to which equity prices have already absorbed risk. J.P. Morgan’s baseline view of a two- to four-week conflict provides a framework for near-term scenarios, while the physical limits of alternative pipeline capacity and the scale of export flow declines inform the downside risk to oil availability and pricing.