Gulf stock markets fall as Strait of Hormuz tensions drive oil prices higher

Gulf stock markets opened lower on Sunday amid mounting uncertainty over the Strait of Hormuz, a critical chokepoint for global oil flows, as tensions between the United States and Iran show signs of escalating. Most regional indices declined at the start of trading, reflecting investor fears over the outcome of US-Iranian talks and potential disruptions to energy shipments, according to reports from Asharq Al-Awsat. This comes as oil prices surged more than 5 percent on Monday, driven by concerns over a possible collapse of the fragile ceasefire between the two nations.

The Strait of Hormuz, through which around 20 percent of the world's oil passes, has been effectively closed or severely disrupted since late February, when a US-Israel attack killed Iran's supreme leader and top officials, prompting Iranian retaliation including missile strikes and mine deployments. This has stranded millions of barrels of crude daily, with West Texas Intermediate crude topping $104 a barrel and Brent exceeding $102, up over 40 percent since the conflict began. Asharq Al-Awsat noted that news of the strait’s re-closure further boosted oil while weighing on other assets, even as the dollar's strength pushed gold prices lower.

The conflict's ripple effects are hitting Gulf economies hard, where stock declines underscore vulnerability to energy volatility. Energy giants like Shell and BP have seen shares jump in pre-market trading, and fertilizer producers such as CF Industries and Nutrien are up sharply due to blocked Middle Eastern supplies, but broader markets remain jittery. Asian nations, reliant on the strait for 60 to 75 percent of their crude imports, face the steepest shortages, while global inventories offer only temporary relief through coordinated releases of over 400 million barrels by IEA-linked countries.

Consumers worldwide are feeling the pinch, with US gasoline and diesel prices climbing and economists warning of inflation spikes. One analysis estimates US inflation could rise nearly 1 percent in March alone if hostilities persist, exacerbating cost-of-living pressures. Disruptions to fertilizers—one-third of which transit the strait—threaten Northern Hemisphere crop yields, driving up food costs just as planting season starts, as highlighted by the IMF and UNCTAD.

Looking ahead, the situation remains fluid, with some unconfirmed reports of Iran planning to reopen the strait for commercial shipping during any ceasefire extension, which could ease oil prices and lift stocks. However, ongoing attacks on energy infrastructure and failed talks keep markets on edge, potentially prolonging supply shortfalls and volatility. Gulf investors and global traders alike await clearer signals from US-Iran negotiations to gauge the next moves in this high-stakes standoff.