Gulf stock markets experienced a downturn on Sunday as investors pulled back amid heightened regional instability following reported attacks on Iran, and retaliatory actions. The situation has prompted concerns about further escalation and its potential impact on regional economies.

Witnesses reported explosions in the Dubai area and over Doha for a second consecutive day on Sunday. These events, combined with Iran's response to alleged U.S. and Israeli strikes, led to the closure of major regional airports, including Dubai International, causing significant air travel disruptions.

Hani Abu Aqla, senior market analyst at XTB MENA, highlighted the increased risk of correction and volatility in Gulf stock markets. He noted that geopolitical tensions are driving risk aversion among investors, putting downward pressure on prices and outlooks. Investors are closely monitoring regional developments, with any further escalation or damage to the real economy likely to exacerbate the sell-off.

Saudi Arabia's main stock index initially plunged by 4.6%, nearing its biggest single-session drop since April. Shares of Al Rajhi Bank fell by 3.3%, while National Bank of Saudi Arabia decreased by 4.5%, and flynas also dropped by 4.5%. In contrast, Saudi Aramco's shares rose by 2.3%.

The Muscat Stock Exchange index pared its losses to 1.5% after an earlier broad sell-off that saw it decline by over 3%. OQ Gas Networks, a major company in the market, saw its shares fall by 2.2%.

The Bahrain Stock Market index declined by 0.6%, while the Qatar Stock Exchange was closed for a public holiday.

The Kuwait Stock Exchange temporarily suspended trading as a precautionary measure.

Abu Aqla also pointed out that disruptions to shipping through the Strait of Hormuz remain a significant risk, negatively impacting investor sentiment and disrupting operations across various sectors.

Barclays bank raised its Brent crude oil price forecast to around $100 a barrel on Saturday, up from $80 the previous day.