Iranian War Reshaping Middle East Asset Pricing: Dubai Under Pressure, Oman Defies the Trend

The Iran-related conflict is altering the global investors' pricing logic for the Middle East markets. Compared to the past focus on economic transformation, financial center construction, and infrastructure investment prospects, funds are now more concerned with countries' ability to withstand geopolitical shocks, fiscal pressures, and external financing fluctuations.

Portfolio managers believe that even if the conflict ends, this trend may continue. Bloomberg reported that since the conflict erupted on February 28, Dubai's benchmark stock index fell by 12%, while Oman's stock index rose by 13% during the same period. Aberdeen Group's investment manager, Fesa Wibawa, stated that recent conflicts have made investors more focused on differentiation rather than triggering a widespread risk repricing.

"The key considerations now include exposure to geopolitical bottlenecks, fiscal leeway, adequacy of reserves, and the strength of sovereign balance sheets."

During this market adjustment, UAE assets have been significantly pressured. Affected by multiple missile and drone attacks from Iran, coupled with the impact of strait closures on oil exports, the performance of the UAE's stock and bond markets has lagged behind most markets in the region. In contrast, Oman's assets have received a higher defensive premium—investors recognize its financial reforms in recent years on one hand, and on the other hand, they are reassessing its sovereign resilience following an upgrade in credit rating.

The US dollar bond market also shows a similar division. The UAE's US dollar bonds recorded a total loss of 2.7%, only outperforming the defaulting country Lebanon in the region and being one of the weakest performing markets. Saudi Arabia, Bahrain, and Kuwait's US dollar bonds are also in the red, while Oman's US dollar bonds achieved positive returns.

Mashreq Capital's head of fixed income, Amol Shitole, said, "Remaining selective is still reasonable, rather than indiscriminately buying up all assets." BlackRock refers to this change as a "structural inflection point," where even though oil and gas revenues can still support government-led infrastructure projects, geopolitical risks make external capital more susceptible to sudden disruptions.