(Bloomberg) -- Stocks in the Gulf retreated the most in the world after an incident in the Sea of Oman threatened to inflame the already tense relationship Iran has with its neighbors. Bonds also fell.
The benchmark equity indexes in Dubai, Abu Dhabi, Kuwait and Riyadh fell about 1% each. Oman’s MSM30 gauge dropped 0.8% as of 9:19 a.m. in London, while the yield on its 2028 dollar bonds climbed nine basis points, the most among Gulf peers.
The U.S. Fifth Fleet said two oil tankers were damaged in an incident near the Strait of Hormuz that one of the ships’ operators described as a suspected attack. The incident follows attacks on oil tankers near the Persian Gulf last month and raises the possibility of a disruption of crude flows.
The decline may be a knee-jerk reaction, said Nader Naeimi, the head of dynamic markets at AMP Capital Investors Ltd. in Sydney. “Even if it’s not an accident, we have seen incidents like this before and they usually pass, without a prolonged effect. Unless, of course, if a war breaks out!”
The Strait of Hormuz, at the entrance of the Persian Gulf, is a waterway for about 40% of the world’s seaborne oil shipments. While most economies in the region are trying to diversify their income away from crude, revenue from energy sales still accounts for a large proportion of their cash inflow.
“The question is if we see escalation from here, or efforts to calm tensions,” said Timothy Ash, a strategist at Blue Bay Asset Management in London. “Trump appeared eager to call off the attack dogs in his administration last month. He seems eager to avoid a major war in the Middle East, involving U.S. troops.”