Saudi Arabia’s stock market extended its rally into a fifth consecutive session on Sunday, supported by strong gains in energy stocks as surging oil prices boosted investor confidence in the kingdom’s energy-heavy market.

The benchmark Tadawul All Share Index rose 2.1%, with every constituent stock posting gains during the session. The rally was led by energy and petrochemical companies, which are particularly sensitive to movements in global crude prices.

Shares of Saudi Aramco jumped 4.1%, marking the company’s strongest intraday percentage gain in nearly four years. Petrochemical producer Yanbu National Petrochemical Company surged 10%, reflecting strong investor demand for companies expected to benefit from higher oil and energy prices.

The rally comes as global oil prices climbed sharply amid escalating geopolitical tensions in the Middle East. Benchmark Brent crude surged above $90 per barrel on Friday for the first time since April 2024, as supply disruptions linked to the expanding conflict involving the United States, Israel and Iran rattled energy markets.

Energy rally turns Saudi market into a hedge

Analysts say the sharp rise in oil prices has transformed Saudi Arabia’s stock market into a relatively safe haven within the region.

Ahmad Assiri, research strategist at Pepperstone, said the Saudi market displayed unusual resilience despite the rising geopolitical tensions across the Middle East.

“In a week defined by escalating regional geopolitical risks, the Saudi equity market has provided outstanding financial resilience,” Assiri said.

He noted that the initial selloff triggered by the conflict earlier in the week quickly faded as investors reassessed the implications of rising oil prices.

“The initial selloff last Sunday proved short-lived as institutional and retail sentiment stabilized by midweek,” he said.

According to Assiri, the surge in crude prices helped drive the rebound, as investors shifted funds into energy-related stocks that stand to gain from higher oil revenues.

The dominance of large energy firms such as Saudi Aramco means the Saudi market often moves in tandem with oil prices. As crude prices rise, investors tend to view the Saudi exchange as a natural hedge against geopolitical shocks affecting global energy supply.

Regional markets show mixed reaction

Across the wider Gulf region, stock markets delivered mixed performances as investors balanced the benefits of higher oil prices against the broader risks posed by the expanding conflict.

Oman’s benchmark index on the Muscat Stock Exchange climbed 2%, supported by gains in financial and industrial stocks.

Bahrain’s market on the Bahrain Bourse added 0.2%, reflecting modest investor optimism tied to stronger oil revenues.

However, other markets showed signs of caution.

The benchmark index on the Qatar Stock Exchange slipped 0.1%, dragged down by a 1.4% decline in Qatar Islamic Bank and a 4.8% fall in Qatar Aluminium Manufacturing Company.

Meanwhile, the main index on Boursa Kuwait edged down 0.3%, with most stocks ending the day in negative territory.

The divergence highlights how the conflict is affecting Gulf economies in different ways. Oil-exporting markets such as Saudi Arabia may benefit from the surge in crude prices, while countries facing direct security risks or shipping disruptions could experience greater volatility.

Energy supply disruptions intensify

Concerns about global energy supply intensified after Kuwait Petroleum Corporation announced it had begun cutting oil production and declared force majeure on some operations. The move follows earlier reductions in oil and gas output in Qatar as maritime disruptions in the region prevented shipments from leaving the Gulf for the eighth consecutive day.

Energy traders say the crisis has severely disrupted shipping through the Strait of Hormuz, the narrow waterway that handles roughly one-fifth of the world’s oil trade.

With tanker traffic slowing dramatically and shipowners increasingly reluctant to enter the high-risk zone, some oil-producing countries have been forced to cut output because storage tanks are filling up with crude that cannot be exported.

The disruption has also begun affecting refined fuel markets, where diesel and jet fuel prices have surged amid refinery shutdowns in parts of Asia and the Middle East.

Outside the Gulf, equity markets appeared more vulnerable to the regional tensions. Egypt’s benchmark EGX 30 Index fell 1.6%, with most blue-chip companies posting losses.

Shares of Commercial International Bank dropped 3.2%, while fintech firm Fawry for Banking Technology and Electronic Payment declined 4%.

Analysts say markets like Egypt’s tend to react more negatively to geopolitical instability because they do not directly benefit from rising oil prices and may instead face higher import costs and economic uncertainty.

Outlook tied to oil and geopolitics

Investors across the region are now closely watching the trajectory of the conflict and its impact on global energy supply. If disruptions to Gulf shipping routes persist or expand to major production facilities, oil prices could climb further, strengthening energy-linked stocks across the region.

Several investment banks have warned that crude could reach $100 per barrel or higher if the Strait of Hormuz remains partially closed for an extended period. However, analysts caution that prolonged conflict could also undermine broader economic confidence, disrupt trade flows, and increase financial market volatility.

Saudi Arabia’s stock market currently appears to be benefiting from its deep exposure to the energy sector, with rising oil prices providing a buffer against the geopolitical turmoil reshaping markets across the Middle East.

Officials at the Federal Reserve are confronting a policy dilemma that economists have long warned about, but policymakers hoped to avoid: a slowing labor market colliding with a fresh wave of inflation pressure driven by geopolitical shocks.

New data released Friday showed the U.S. job market unexpectedly weakened in February, even as energy prices surged in the wake of the escalating U.S.–Israeli conflict with Iran. The conflicting signals are forcing central bank officials to weigh whether to keep interest rates elevated to restrain inflation or cut borrowing costs to support a labor market that may be losing momentum.

For now, policymakers appear inclined to wait.

At the center of the debate is the possibility that the United States could drift toward stagflation — a rare and difficult economic environment marked by sluggish growth, rising unemployment, and persistent inflation.

“We need to keep our eye on both,” Mary Daly said in an interview with CNBC, referring to the central bank’s dual mandate of stable prices and maximum employment. “Both of our goals are risks now.”

A labor market that may be turning

The February employment report provided the first clear sign this year that the U.S. labor market could be losing strength. Employers unexpectedly cut jobs during the month, and the unemployment rate climbed to 4.4%, according to the Labor Department. While a single report rarely changes the Fed’s policy outlook, the broader trend is raising concerns.

Private-sector employers have added fewer than 300,000 workers across all of 2025 so far. Excluding the economic collapse during the COVID-19 pandemic in 2020, that would make this the weakest year for job growth since 2009, when the U.S. economy was still emerging from the global financial crisis.

Part of the decline reflects temporary factors. Labor strikes in the healthcare sector disrupted hiring, while the federal government continues to shrink its workforce through spending cuts and restructuring. Yet even when January’s stronger report is averaged with February’s weaker one, job growth appears to be running below the pace required to keep unemployment stable.

Daly estimates the U.S. economy needs roughly 30,000 new jobs per month simply to hold the unemployment rate steady. The latest figures suggest hiring is falling short of that threshold.

War-driven oil surge complicates inflation fight

At the same time, the inflation battle that has dominated Fed policy for years is far from over.

Energy markets have been rattled by the expanding conflict between the United States, Israel, and Iran. Oil prices climbed close to $90 per barrel this week, raising fears that the conflict could disrupt supplies across the Middle East.

The impact on consumers has been immediate. Average gasoline prices in the United States jumped from roughly $3 per gallon to $3.32 within a week. Such spikes often ripple through the broader economy. Higher energy costs increase transportation and manufacturing expenses and can push up the price of goods ranging from food to airline tickets.

The Fed’s preferred inflation measure was running at 2.9% in December, and economists expect the next report to show little improvement. That remains significantly above the central bank’s 2% target — a goal the Fed has failed to achieve consistently for five years.

Fed Governor Christopher Waller said the oil spike might ultimately prove temporary if geopolitical tensions ease.

“If it’s unwound in a couple of weeks or even two months, it’s not going to be a big factor down the road,” Waller said in an interview with Bloomberg Television.

But he acknowledged the risks if the conflict drags on.

“If it becomes more permanent, then it’ll start bleeding through to other parts of the economy.”

Policy crossroads inside the Fed

The diverging economic signals are intensifying debate within the central bank.

Some officials believe the weakening labor market will ultimately require lower interest rates to support economic growth. Others argue that easing policy too quickly could reignite inflation, especially if oil prices remain elevated.

Stephen Miran, who has advocated rate cuts since joining the central bank last year, said rising energy prices could strengthen the case for easing.

Higher fuel costs act like a tax on households, forcing consumers to divert spending away from other parts of the economy.

“It pulls demand out of the economy as people have to spend more on energy products,” Miran said in an interview with CNBC. “If anything, it biases me toward even more dovish policy.”

Yet other policymakers remain wary of declaring victory over inflation too soon.

Beth Hammack said she believes policy should remain unchanged until inflation clearly moves closer to the Fed’s target.

“Under my base case, I think policy should be on hold for quite some time as we see evidence that inflation is coming down and the labor market stabilizes further,” she said.

Susan Collins similarly urged patience, calling for a “deliberate approach” as policymakers navigate a highly uncertain environment.

Markets betting on rate cuts

Financial markets, however, are increasingly betting that the Fed will soon be forced to ease policy.

After the weak jobs data, traders raised the probability of a rate cut in June to roughly 51%. Another reduction is widely expected by the end of the year.

The timing could coincide with a leadership change at the central bank.

President Donald Trump has nominated former Fed governor Kevin Warsh to replace current chair Jerome Powell. Warsh is expected to assume the role in June if confirmed. The transition could shape the next phase of monetary policy, particularly if economic conditions deteriorate further.

For Fed officials, the current moment carries echoes of past economic crises.

Periods when inflation rises while growth slows are among the most challenging environments for central banks. Tightening policy risks deepening the slowdown, while easing policy could fuel additional price increases.

For now, policymakers appear likely to hold interest rates steady at their upcoming March 17–18 meeting while they gather more data. But with hiring weakening, oil prices climbing, and geopolitical tensions rising, the Fed may soon face a difficult decision: whether to prioritize the fight against inflation or move quickly to prevent the labor market from slipping into a broader downturn.