Stock markets in Israel and the Middle-East opened deep in the red, as repercussions of the unexpected assault on Israel by the Palestinian group Hamas on Saturday had a ripple effect, Bloomberg reported. The declining stock values are now setting the stage for a potentially unstable week.

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On Sunday, significant stock indices in the region experienced a decrease, with Israel’s main TA-35 stock index leading the way with a substantial 5.2 percent decline, marking its most significant loss in over three years. The Tadawul All Share Index in Riyadh saw a 1.2 percent drop, and stocks in Kuwait, Qatar, Oman, and Bahrain also exhibited weakness. Egypt’s EGX30 gauge faced a decline of up to 2 percent.

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Background

The recent attacks by Hamas represent the most lethal assault on Israel in many years and pose a threat of escalating into a broader conflict. Israeli Prime Minister Benjamin Netanyahu stated that his country would initiate an extended military operation against Hamas and expressed confidence in Israel’s victory. President Joe Biden assured “rock solid” support from the United States for Israel.

This conflict arises during a period of diplomatic sensitivity and a historic division within Israel concerning Netanyahu’s coalition with the far-right. Their attempts to reform the nation’s judiciary have created internal discord. In the midst of these developments, the Israeli shekel has declined towards a seven-year low in the days leading up to the scheduled reopening of Israel’s parliament later this month.

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“Divisions in Israel’s politics and security structure will be papered over while the military response in Gaza is ongoing, but they are not going away. That will remain a vulnerability for all Israeli asset prices,” Hasnain Malik, a Dubai-based strategist at Tellimer, a provider of research and data on emerging markets to investors, told Bloomberg.