DUBAI (Reuters) – Gulf stocks fell sharply in early trade on Sunday, led by Kuwaiti shares, on escalating tensions between the United States and Iran.

Iranian military commander Qassem Soleimani, the architect of Tehran’s overseas clandestine and military operations was killed on Friday in a U.S. drone strike on his convoy at Baghdad airport.

The killing is seen by Tehran as an act of war that risks regional conflagration.

The Kuwaiti index, the best performer in the region in 2019, was down nearly 3.8% in early trade, Dubai stocks were down 1.8% and the Abu Dhabi index fell 1.1%.

The Saudi market plunged 2% at the market open, with shares of in oil giant Saudi Aramco down 0.7%.

“A US-Iran war could shave 0.5 percentage points or more off global GDP, mainly due to a collapse in Iran’s economy but also due to the impact from a surge in oil prices,” Jason Tuvey, senior emerging markets economist at Capital Economics, said in a note last week.

He said while a U.S.-Iran conflict would probably pressure equity and bond markets in the Middle East, Gulf countries’ currency pegs to the U.S. dollar would likely remain intact.

Oil prices jumped to $63.05 a barrel on Friday, their highest level in more than three months, after Soleimani’s killing sparked fears that conflict in the region could disrupt global oil supplies. [O/R]