Syria tensions likely to hit Gulf markets

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Gulf markets are likely to be dampened on Tuesday by the possibility of international military action against Syria after Washington said it believed the government in Damascus was responsible for the use of chemical weapons.

An August 28 meeting between senior diplomats from the United States and Russia on Syria was postponed, while the Washington Post said U.S. President Barack Obama was weighing a military strike against Syria.

It is not clear whether an escalation of the fighting in Syria would actually have any direct impact on Gulf economies. Although it is possible that Damascus and its allies could mount covert action against the Gulf, such action would probably not change long-term economic prospects.

Several Gulf countries including Saudi Arabia have already been supporting Syrian rebels with no negative consequences. Geopolitical tensions can actually benefit the Gulf in one way by pushing up global oil prices.

But Gulf markets are near multi-year highs so they are vulnerable to profit-taking by retail investors who have been dominating trade in recent weeks.

Saudi Arabia’s benchmark lost 0.9 percent on Monday as Syria tensions worsened, but it recovered some of its intra-day losses in the last few minutes of trade – an indication that some investors believed its pull-back was overdone. The market hit a near five-year high last week.

Dubai’s measure slipped only 0.2 percent on Monday; the emirate is still seen as a safe haven during times of regional instability.

Asian stocks fell on Tuesday morning while Brent crude oil rose above $111.0 per barrel, a five-month high.

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