Stock markets in Dubai and Abu Dhabi retreated into negative territory on Sunday, reflecting the sentiment of other Gulf indices Image Credit: Gulf News

Dubai: Top indices on the UAE bourses witnessed a sharp sell-off on Sunday after investors grew increasingly uneasy on escalating geopolitical tensions in the Middle East.

Dubai Financial Market’s top index ended down 3.06 per cent to 2,684.24 points in heavy trading, while Abu Dhabi Securities Exchange fell 1.42 per cent to 5,027.96.

Prominent Iranian General Qassem Soleimani was killed in Iraq in a US drone attack, which was followed by Iranian President Hassan Rouhani warning of retaliation. President Donald Trump in turn flagged that the U.S. has identified 52 Iranian sites that it would hit if Tehran attacks.

Market participants are concerned that the tensions between Iran and the US could impact the political stability of Iraq and the oil production in the second largest OPEC producer after Saudi Arabia, analysts at UBS wrote in a client note.

“Iran’s retaliation is likely to be gradual, with a string of attacks in and outside the region, rather than a one-off,” said Firas Modad, Middle East Director at IHS Markit, adding that Iran may also conduct attacks against energy, desalination, maritime and aviation assets in the UAE and Saudi Arabia.

All the region’s major equity gauges fell on Sunday and analysts warned of more volatility this week. Kuwait’s benchmark dropped more than 4 per cent, Saudi Arabia’s Tadawul All Share Index shed 2.1 per cent and the main index in Qatar dropped over 2 per cent.

Investors will turn cautious due to the heightened risk in geopolitical environment and further escalations could lead to downward pressure in regional equities, said Iyad Abu Hweij, managing director at Allied Investment Partners PJSC.