Gulf Markets Slide as Saudi-UAE Tensions over Yemen Rattle Investors

Equity markets across the Gulf closed mostly lower on Tuesday as renewed political tensions between Saudi Arabia and the United Arab Emirates unsettled investor sentiment. The sell-off followed heightened friction between the two regional powers over developments in Yemen, a country that has faced prolonged instability for more than a decade.

Dubai’s main index fell 2%, marking its sharpest intraday decline since June, according to LSEG data. Abu Dhabi’s benchmark index and Saudi Arabia’s Tadawul All Share Index (TASI) each declined by about 1%, as investors reacted to concerns over potential spillover effects on economic and financial cooperation within the Gulf Cooperation Council (GCC).

Market participants remained cautious, with political developments dominating sentiment despite generally stable economic fundamentals.

Yemen Conflict Rekindles Gulf Tensions

The market reaction came hours after Saudi Arabia issued a strong statement declaring its national security a “red line,” following airstrikes by a Saudi-led coalition in Yemen. The strikes reportedly targeted what Riyadh described as foreign military support for UAE-backed southern separatist forces.

Saudi Arabia also called for the withdrawal of UAE forces from Yemen, signalling a rare public disagreement between two long-standing allies. The dispute centres on Yemen’s Southern Transitional Council (STC), which has clashed with forces loyal to the internationally recognised Yemeni government backed by Saudi Arabia.

The renewed confrontation has raised concerns over a deeper fracture within the coalition involved in Yemen’s civil war, which began in 2014 and has since evolved into one of the region’s most complex proxy conflicts.

UAE Voices Disappointment

The UAE responded by expressing disappointment with Saudi Arabia’s position and said it was surprised by the airstrike on Mukalla, a strategic port city in eastern Yemen. Emirati officials stressed the importance of coordination among coalition partners and warned that internal divisions could exacerbate instability in Yemen.

Analysts noted that while Riyadh and Abu Dhabi continue to share broad strategic objectives, differences over political influence in southern Yemen have been a source of underlying tension for several years. Tuesday’s developments brought those differences into sharper public focus.

Sector Impact: Real Estate and Banks Lead Declines

In Dubai, blue-chip stocks were among the hardest hit. Emaar Properties, one of the UAE’s largest real estate developers, fell 2.8%, reflecting its sensitivity to cyclical and geopolitical risk. Dubai Islamic Bank declined 2.3%, weighing on the broader financial sector.

Oil Prices Offer Limited Support

Oil prices, a key driver of Gulf market performance, were largely unchanged during the trading session. Traders balanced rising geopolitical risks in the Middle East against diminished prospects for a near-term peace agreement between Russia and Ukraine, which could influence global energy supply.

“The lack of a meaningful move in crude prices limited further downside in energy-heavy Gulf indices, but it was insufficient to offset the negative impact of political uncertainty,” an analyst said.

Mixed Performance Across the Region

Elsewhere in the Gulf, Qatar’s index closed flat, indicating limited immediate impact from the Saudi-UAE dispute. Bahrain’s market bucked the regional trend, rising 0.6% after the government announced fiscal measures aimed at strengthening public finances.

Outside the Gulf, Egypt’s benchmark index edged up 0.1%, showing little correlation with developments in Gulf markets.

Investor Outlook Remains Cautious

Market strategists said that Gulf equities continue to be supported by strong corporate balance sheets, economic diversification efforts, and large-scale infrastructure spending. However, geopolitical developments—particularly involving key regional players—remain a source of short-term volatility.

Investors are expected to closely monitor political signals from Riyadh and Abu Dhabi in the coming days, as any escalation or easing of tensions could significantly influence regional risk appetite.

The recent decline in Gulf stock markets underscores the region’s continued sensitivity to geopolitical developments, even as economic reforms and diversification efforts advance. While Saudi Arabia and the UAE have traditionally managed strategic differences behind closed doors, the increasingly public nature of the Yemen-related dispute has unsettled markets. Preserving regional stability will remain critical to sustaining investor confidence going forward.