Investors on high alert as US-Iran tensions threaten market stability

Dubai: Global markets are entering the week on high alert after the US launched direct airstrikes on Iranian nuclear facilities—signaling a serious escalation in Middle East tensions.

The move, authorised by President Donald Trump without Congressional approval, caught many off guard, especially after he had hinted at a two-week window for diplomacy. Now, investors worldwide are watching closely for Tehran’s response.

On Sunday, early signals from the Gulf showed regional exchanges—like those in Kuwait, Qatar, and Oman—trading flat. Caution is building as the possibility of retaliation by Iran looms, and fears grow that oil flows could be disrupted through the Strait of Hormuz, a crucial passage for global crude and gas exports.

Oil prices, which have already been on a rollercoaster, are expected to drive broader market sentiment. “Short-term, markets such as crude oil will pivot on whether Iran retaliates and widens the war in a way that impacts oil supply versus backing down,” said Hasnain Malik, a strategist at Tellimer in Dubai.

Wall Street ended last week mixed amid weakness in semiconductors and hopes that the conflict would remain limited. However, that optimism faded after Trump’s warning of “even greater force” if Iran responds. Investors are now pivoting to safe-haven assets like gold, bonds, and defence-linked equities, anticipating greater volatility ahead.

Iran has vowed “everlasting consequences,” with speculation rife about possible counterattacks on U.S. bases or Israeli nuclear sites, or even escalation of its own nuclear program. The worst-case scenario, according to some analysts, could be a collapse of the Iranian regime and descent into civil conflict, mirroring Syria’s trajectory.

For investors, this week presents a tough call—whether to hedge against rising geopolitical risk or position for eventual de-escalation. Markets will closely monitor oil movements, diplomatic developments, and any military signals in what promises to be one of the most geopolitically charged weeks in recent memory.