Gulf markets end higher, shielded from major turmoil after the U.S. strike on Iran

Markets across the Middle East ended mostly higher on Sunday after the United States entered the war between Israel and Iran and struck three key Iranian nuclear sites, Fordo, Natanz and Isfahan.  

Stocks in Tel Aviv reached an all-time high on Sunday on bets that Washington's entrance into the conflict with Tehran would help it to come to an end, despite the Iranian Foreign Minister's insistence that the country could not return to diplomacy "while under attack."

The broader TA-125 index was trading 1.77% higher on Sunday, while the TA-35, Tel Aviv's blue-chip index, was up 1.5%. Equities climbed in Israel last week after the country hit targets in Iran.

In the Gulf, Saudi Arabia's Tadawul opened Sunday trading nearly half a percent higher before erasing earlier gains and closing down 0.3%. Qatar gained 0.2% and Bahrain's index added 0.3%. Bahrain, home to the U.S. Central Command, issued a "work from home mandate" on Sunday, urging citizens to "only use main roads when necessary to maintain public safety."

Egypt's benchmark EGX30 was the major gainer in the region, closing 2.7% higher on Sunday.

"The Gulf has distanced itself and has been calling for appeasement, supporting a peaceful resolution, and has gone as far as condemning Israeli aggression," Fadi Arbid, founding partner and CIO of Amwal Capital Partners, told CNBC. He explained that such rhetoric "has helped the Gulf isolate itself from conflict" and any significant short-term market impact, adding that the net mid-term is positive.

"The market might be priced in on removing a big overhang, which is the Iranian threat," Arbid said, which "at least the international investor would look at positively" once the issue of Iran is removed.

Saudi Arabia, the UAE and Qatar have all released statements in the last 24 hours, the UAE urged an immediate halt to escalation to "avoid serious repercussions" in the region, while Saudi Arabia expressed concern and Qatar said it "deplored deterioration" in the conflict between Israel and Iran.

Investors will be watching for swings in the oil market when it opens later this evening, and whether Iran intends to block the Strait of Hormuz, a crucial waterway through which a quarter of the world's oil supply passes. 

Tanker Trackers, a website that tracks global oil shipments, said that as of 3:40 p.m. UAE time on Sunday, "tanker traffic is still moving in both directions within the Strait of Hormuz," citing AIS data.

"Oil prices are likely to open higher, further increasing the geopolitical risk premium," Giovanni Staunovo, a commodity analyst at UBS told CNBC on Sunday, adding that oil will maintain a "risk premium for now," and prices will remain volatile in the near term as it is "unclear how the conflict might evolve."

Prices fell 2% on Friday, before U.S. President Donald Trump moved to enter the war between Israel and Iran. Brent futures have jumped 11% since Israel's attack on Iran less than two weeks ago, and both Brent and U.S. crude oil have remained volatile since. Prices are expected to rise on Monday following Washington's strike on Iran's nuclear facilities.

"Oil markets are likely to take the U.S. attacks as a substantial escalation of the war and price in elevated security of supply risks." Edward Bell, acting chief economist at Emirates NDB, told CNBC. He added that markets remain bound by headlines, not fundamentals and said to expect "big swings" in the coming days.

"While there remains no interruption to flows of oil coming out of the Gulf and oil infrastructure has not come under direct attack, markets will still likely price in an elevated geopolitical premium," Bell said.