Saudi Equities Outperform Global Markets

As the U.S.-Israeli conflict with Iran moves into its second month, the Gulf continues to face drone and missile attacks, the destruction of infrastructure and property, the curtailment of oil and gas exports, and uncertainty about how and when the conflict will end.

Through these challenges, however, the Saudi equity market has proven to be remarkably resilient. After dropping during the first few days of the conflict, the Tadawul All Share Index has recovered and is now up by 5% since the start of hostilities. This stands in contrast to most other regional and global markets. U.S. equity prices are down by around 5%, the Dubai market by 15%, and an index of world equity prices has declined by around 6%.

Why Have Saudi Equity Prices Risen During the Conflict?

At least three factors have supported the Saudi equity market. First, despite the closure of the Strait of Hormuz, Saudi Arabia can export a significant amount of oil and oil products via Yanbu on the west coast with the East-West oil pipeline now reported to be operating at its full capacity of 7 million barrels per day. Reflecting this, Aramco’s share price has risen by 10% since the start of the conflict as investors bet that higher oil prices will offset lower oil export volumes and support Aramco’s earnings. Given its high weight (around 15%) in the Tadawul index, Aramco’s rising share price has given the overall market a boost.

Source: Tadawul; author calculations.

Second, the market has been supported by equity purchases by government-related enterprises (specific institutions involved are not disclosed). These have offset sales by Saudi individual investors and to a lesser extent by foreign investors. Sales by the latter followed the surge in their purchases in February after restrictions on foreign investor participation in the Saudi markets were eased.

Third, the Saudi economy is in a better position than most of its Gulf neighbors because of its larger size, lower exposure to the Strait of Hormuz, and less dependence on foreign capital and skilled labor. This should mean it experiences a smaller hit to economic growth than other countries in the region.

What’s Next?

Global oil and financial markets continue to swing wildly from day-to-day as investors react to President Donald J. Trump’s latest words and social media posts about the likely duration and endgame of the conflict.

Against this uncertainty, can the Saudi market stay in positive territory? A quick end to the conflict with the reopening of the Strait of Hormuz would almost certainly boost Saudi equity prices, particularly if full oil production is restored quickly and the oil price settles above its pre-conflict level as seems likely (financial markets are currently pricing Brent crude for December 2026 delivery at $78 per barrel compared to $69/bbl pre-conflict). In turn, this would help industries, such as petrochemicals, that are being forced to cut production and minimize the risks of longer-term damage to investor and foreign visitor confidence.

A longer conflict or one that ends with Gulf security issues unresolved, however, would make it much harder for equity prices to stay in positive territory, as the damage to economic growth would be greater. A particularly negative scenario would be the resumption of attacks on ships navigating the Bab el-Mandeb strait, which would disrupt oil shipments to Asia.

The views represented herein are the author's or speaker's own and do not necessarily reflect the views of AGSI, its staff, or its board of directors.