Market Overview
Global markets entered March navigating the most severe geopolitical energy shock since the 1970s, as US–Israeli airstrikes on Iran — commencing 28 February — effectively closed the Strait of Hormuz, through which approximately 20% of the world's crude and significant LNG volumes transit.
Brent crude surged from roughly $70 to over $107 per barrel inside the month, reordering growth forecasts, inflation trajectories, and monetary policy calculus across all major economies. The macro backdrop for Q2 and beyond is now bifurcated between a swift de-escalation scenario and a prolonged disruption scenario, each implying materially different paths for rates, currencies, and credit.
Europe confronted the inflation-growth dilemma head-on. The ECB, having cut rates eight consecutive times since June 2024, held its deposit rate at 2.0% at its 19 March meeting, acknowledging that rising energy prices would push near-term inflation above the 2% target — revised upward to a 2026 average of 2.6%.
The Middle East delivered intra-regional divergence, though overall resilience remained evident. Saudi Arabia, supported by Aramco's Red Sea export routing and revenue uplift from $100+ oil, saw TASI end the month near flat — the only major GCC bourse to largely hold its pre-war level.
India closed FY26 with its worst fiscal-year equity performance since FY20, as the confluence of surging oil prices, a record-low rupee at 94.85 against the dollar, and FPI outflows exceeding $13 billion in March alone dragged the Nifty 50 to 22,331 and the Sensex to 71,948.
EMEA Financial & Capital Markets
Stock Market Performance
FTSE 100 — LondonThe FTSE declined from its all-time high of approximately 10,934 reached in late February, pulling back around 7.96% through month-end. Despite the correction, its commodity-heavy composition — BP, Shell, Rio Tinto, Glencore — provided structural outperformance versus European peers. It closed March 31 at approximately 10,176.
TASI — RiyadhSaudi Arabia's Tadawul demonstrated remarkable resilience. TASI closed at approximately 10,887 on March 16 — the last session before Eid al-Fitr suspension — recovering almost entirely from a war-driven intraday low of 10,214 reached early in the month. Saudi Aramco was the primary anchor.
DAX 40 — FrankfurtGermany's benchmark recorded its steepest monthly loss since March 2020, closing at 22,680.04 on March 31. Export-heavy industrials, autos, and chemicals bore the brunt of energy cost transmission. German CPI rose to 2.7% year-on-year in March, driven by energy pass-through.
DFM — DubaiDubai's market saw a sharper repricing following a strong prior rally, with ADX and DFM briefly pausing trading in early March amid elevated volatility. Key names including Emirates NBD, Emaar, and Air Arabia saw near-term pressure, while Dubai's real estate segment corrected over 17% from pre-war levels.
Euronext 100 / Euro Stoxx 50The Euro Stoxx 50 closed around 5,541 at month-end, gaining 0.7% on the final trading day but recording broad monthly declines. Consumer discretionary, financials, and industrials led losses, while defence and energy names provided partial offsets.
ADX — Abu DhabiAbu Dhabi showed relative resilience versus Dubai, supported by strong institutional participation and deep liquidity. Aldar Properties, First Abu Dhabi Bank, and Abu Dhabi Aviation all hit the −5% daily limit on reopening, while market functioning remained orderly.
QSE — QatarQatar avoided forced closure but faces dual exposure, with LNG export infrastructure facing east into the Persian Gulf. QSE declined approximately 4% on the month, cushioned modestly by gas price gains. Qatar bonds emerged among the least-performing EM instruments in March.
Bond & Credit Markets
GCC debt capital markets entered March with exceptional momentum, then abruptly stalled. In the weeks before hostilities commenced, issuers had moved aggressively to front-load issuance ahead of the traditional Ramadan slowdown. Saudi Arabia and the UAE dominated DCM volumes, with sukuk reaching a record 41% share of regional DCM.
The war materially disrupted this pipeline. New US dollar bond and sukuk issuances fell significantly from the first week of March, with major deals placed on hold pending geopolitical clarity. Despite spread widening, Fitch observed there had been no market-wide selloffs, and MENA sukuk continued to trade tighter than conventional bonds.
“Historically, regional DCM issuances have typically rebounded swiftly once tensions eased following previous geopolitical conflicts in the Middle East. However, the ultimate effect will depend on the scope and duration of the Iran war.”
— Bashar Al Natoor, Global Head of Islamic Finance, Fitch Ratings
Saudi Arabia is projected to account for $174.5 billion in fixed-income maturities from 2026 to 2030, while the UAE is projected at $171.8 billion. Refinancing pressure is elevated, and if market access remains interrupted through Q2, rollover risk for select corporate issuers warrants monitoring.
Regulatory & Economic Developments
ECB Holds at 2.0%At its 19 March meeting, the ECB maintained its deposit rate at 2.0% — the first pause following eight consecutive cuts since June 2024 — citing energy-driven inflation risks from the Middle East conflict. Headline inflation for 2026 was revised to 2.6%.
Bank of England HoldsThe BoE held rates steady while noting that CPI is likely to reach 3.0–3.5% over the next couple of quarters, driven by energy prices. Market expectations for rate cuts have been pushed firmly into Q3 at the earliest.
UAE Capital Market Emergency MeasuresFollowing Iranian strikes on UAE territory, the UAE Capital Markets Authority applied temporary −5% daily price limits and instructed ADX and DFM to suspend trading for two days. Listed companies were ordered to assess and disclose material financial or operational exposure related to the conflict.
EU Energy Ministers ConveneEuropean Union energy ministers met in late March to discuss a coordinated approach to oil and gas market volatility triggered by the Iran conflict. Focus areas included emergency reserve deployment, demand-side measures, and accelerating LNG import infrastructure.
India Retains Inflation Target FrameworkThe Government of India confirmed the extension of the Flexible Inflation Targeting framework, maintaining a 4% CPI target with ±2% tolerance for the five-year period commencing April 1, 2026.
India Financial & Capital Markets
Stock Market Performance
Nifty 50 — NSEThe Nifty closed FY26's final session at 22,331.40, down 488 points on the day, as protracted US–Iran war concerns intensified. Indian equities concluded FY26 with their worst fiscal performance since FY20. Nifty PSU Bank and Nifty Financial Services were among the worst sectoral performers in March.
Sensex — BSEThe Sensex settled at 71,947.55 on March 30, shedding 1,636 points in the final FY26 session. Bajaj Finance, Shriram Finance, and State Bank of India led declines. Banking stocks faced dual pressure from RBI's FX restrictions and uncertainty around monetary policy direction.
Capital Market Trends
India's bond market absorbed a significant external shock. The benchmark 10-year government bond yield, which had been hovering around 6.60–6.67% entering March, surged to 6.70%+ following the outbreak of hostilities before reaching 6.94% by month-end — the highest in a year.
FPI outflows were a defining feature of March. Foreign portfolio investors sold over $13 billion of Indian equity and debt across the month, with selling pressure intensifying after mid-month as Goldman Sachs issued successive GDP forecast cuts and Brent crude approached $110–120 per barrel.
Corporate fundraising and infrastructure debt were effectively repriced. The government's FY27 gross borrowing programme stands at ₹17.2 trillion, an 18% increase over FY26 revised estimates, putting upward pressure on long-term yields as banks and insurance companies taper their buying of long-duration government securities.
Policy & Economic Developments
The RBI faces its sharpest policy dilemma in years. Entering March, the central bank's framework was accommodative, but the Iran war has fundamentally altered that calculus. Goldman Sachs now projects India's 2026 inflation rising to 4.6%, driven by crude oil and rupee depreciation.
The rupee reached a record low of 94.85 against the dollar on March 27, its fourth consecutive weekly decline. The RBI depleted approximately $30 billion in forex reserves during March alone and imposed a new cap limiting banks' net open rupee position in the onshore deliverable market to no more than $100 million by April 10.
India's trade position deteriorated materially. India's crude basket reached as high as $157 per barrel during the month before settling around $116 by March 27. Oil companies were constant dollar buyers in the FX market to secure energy supply without interruption.
Outlook & Strategic Implications
Risks & Opportunities by Region
Europe- Energy cost transmission to manufacturing margins materially worsens Q1–Q2 earnings visibility, particularly for German industrials, autos, and chemicals.
- Defence and infrastructure spending acceleration provides revenue tailwinds for European capital goods and engineering firms.
- ECB rate cut path is effectively suspended; floating-rate euro credit remains stable-to-higher for longer.
- Poland, CEE, and the periphery continue to outperform, creating selective corporate lending and PE opportunities.
- UAE aviation, hospitality, and real estate face a structural demand shock from flight cancellations, expatriate capital flight, and real estate correction.
- Qatar faces potential GDP contraction risk if Hormuz disruption persists.
- GCC DCM pipeline is effectively paused for new issuance, raising cost-of-capital risk for near-term refinancers.
- Saudi Arabia is the standout beneficiary, supported by Aramco's Red Sea routing, $100+ oil revenue, and deep TASI liquidity.
- Oil import bill pressure is widening the current account deficit and creating fiscal overrun risk from subsidy commitments.
- Rupee at record lows amplifies import inflation and increases debt service costs for unhedged USD liabilities.
- FPI outflows above $13 billion signal deteriorating EM India risk appetite.
- RBI policy pivot risk could suppress credit growth if rate hikes materialise.
- Hormuz closure is the single largest supply disruption since the 1970s energy crisis.
- Global credit market fragmentation reduces liquidity for emerging market corporates at a critical refinancing period.
- China-plus-one FDI dynamics remain structurally intact, supporting Southeast Asian markets.
Scenario Analysis
High Probability — Phased De-escalation, Hormuz Opens Mid-AprilThe Trump administration signals willingness to end the military campaign; the Strait of Hormuz partially reopens by mid-April with full normalisation over 30 days. Brent falls from approximately $105 to $80 by Q4. GCC DCM resumes issuance in May and UAE markets stage a sharp recovery.
Medium Probability — Prolonged Disruption Through Q2Hormuz remains contested through mid-May and oil stabilises around $100–115. European recession risk materialises in Germany and the UK, India faces RBI rate hike risk, and GCC sovereign borrowers shift to local-currency and bilateral financing.
Low Probability — Escalation; Brent Peaks $150–200Iranian strikes cause material damage to Gulf energy infrastructure. Brent spikes to $150–200. Germany, Japan, and the UK enter recession. India's current account deficit becomes unmanageable without IMF-level support, and EM debt markets shut to new issuance for several quarters.
Strategic Recommendations for Corporates
Debt StrategyGCC corporates with bond or sukuk maturities due in H2 2026 should not wait for market normalisation to initiate refinancing conversations. Engage lead arrangers now and pre-position documentation.
Capital AllocationSaudi Arabia is the only GCC market actively receiving international institutional capital. Corporates and PE sponsors seeking to deploy regionally should prioritise Saudi mandates and Saudi-linked assets in Q2.
India ExposureIndian corporate treasuries should accelerate the hedging of USD-denominated obligations with near-term maturities. Domestic-demand sectors such as FMCG, pharma, and rural consumption represent defensive allocations.
Supply ChainFirms with Middle East-dependent supply chains should activate alternative routing protocols now. Red Sea via Saudi western ports, Cape of Good Hope alternatives, and air freight for critical inventory should be evaluated.
EuropeEuropean corporates, especially manufacturing and export-heavy sectors, should model scenarios where energy costs remain elevated through year-end. Input cost hedging for H2 2026 energy exposure should be considered where economically rational.
Regulatory PositioningIndian financial services firms should ensure FX position compliance ahead of the April 10 deadline. GCC firms should treat UAE CMA disclosure orders as a precursor to enhanced regulatory scrutiny.
How Graystone Capital Can Help
The environment described in this edition — volatile credit spreads, paused GCC primary issuance pipelines, materially repriced cost of capital across Indian debt markets, and divergent sovereign risk profiles across EMEA — is precisely the environment in which the quality of your advisory relationship determines transaction outcomes.
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