Shares across the world fell yesterday as the prospect of military intervention in Syria sent jitters through the financial markets.
While stock exchanges in the Middle East predictably tumbled as the interventionist rhetoric in London and Washington intensified, Western markets also sank heavily as the uncertainty added to pre-existing worries about macro-economic issues such as the US Federal Reserve's plans for "tapering" its $85bn-a-month quantitative easing programme.
Dubai shares had their biggest fall since the country's economic crisis in 2009, tumbling 7 per cent by the close of trading as local brokers reported Western investors fleeing.
"It's down to geopolitics.... Foreigners are apparently selling and exiting the market," al-Ramz Securities' head of research Talal Touqan told Bloomberg in Dubai.
Saudi Arabia's index fell more than 4 per cent while Kuwait and Abu Dhabi both fell 3 per cent. Iran's foreign ministry has warned a US attack on Syria could drag the whole Middle East into the conflict.
Analysts said Dubai had the most to lose from a conflict because of its economy's reliance on tourism and trade in the region, as well as its stock market's strong gains this year.
European shares fell 3 per cent, while the main indices in London and New York both retreated around 1 per cent, with the Dow Jones Industrial Avereage shedding 170 points. The Nasdaq index was even lower, falling by over 2 per cent. The prospect of a widening conflagration in the region sent the oil price sharply higher. Brent crude leapt to six-month highs, settling at $3.63 a barrel to $114.36 – its highest price in six months.
Brenda Kelly, the head of strategy at IG, said: "Unrest in the Middle East and the potential for increased volatility tend to put the risk on the upside for oil, and any prolonged disruptions to pipeline supply could send the oil price back to this year's highs of $119."
Gold, also rose sharply, as did the Japanese yen and Swiss franc. Government bonds in the US, UK and Germany attracted large amounts of safe-haven investment.
Market strategists said the Syrian situation was exacerbating the flight of investors out of emerging markets, adding to the concerns taking hold about the impact on such countries of an end to the super-low interest rates and quantitative easing in the US.
The Indian rupee fell to yet another record low with investors now worrying that the Syria-induced oil-price rise would make India's current account deficit even worse. India is almost entirely at the whim of the foreign commodities markets, importing nearly 80 per cent of its oil.
The recent attack on emerging markets by investors has particularly been focused on countries such as India, with imports significantly outweighing exports. Now trading at 66.075 to the US dollar, the rupee has fallen 17 per cent this year.
Investors in the UK have become increasingly concerned about whether to believe the pledge from the new Bank of England Governor, Mark Carney, to keep interest rates on hold until mid-2016, when he believes unemployment will have fallen from 7.8 per cent to 7 per cent.
Given the improving flow of data on the economy, markets are rapidly beginning to expect this point will come far sooner, possibly more than a year in advance of Mr Carney's forecast. The Governor gives a key speech today, at which he is expected to defend his position by focusing on the continued strains facing the UK economy, in particular its jobs market.