Mideast stocks slide, enter volatile week as Israel declares war after Hamas attack

The fallout from Saturday’s surprise attack on Israel by the Palestinian group Hamas reverberated through Middle East markets, sending stocks sliding and setting the tone for what’s likely to be a volatile week.

Major equities gauges in the region fell Sunday, led by a 7 percent drop on Israel’s benchmark TA-35 stock index, its biggest loss in more than three years. The Tadawul All Share Index in Riyadh fell 1.2 percent while stocks in Qatar and Kuwait also weakened. Egypt’s EGX30 gauge declined as much as 5.4 percent.

The Hamas assaults mark the deadliest attack on Israel in decades and threaten to escalate into a broader conflict. Israeli Prime Minister Benjamin Netanyahu declared that his country would launch a prolonged military campaign against Hamas and expressed confidence Israel would win. President Joe Biden pledged “rock solid US support” for Israel.

The conflict comes at a time of diplomatic sensitivity and also a moment of historic division within Israel over Netanyahu’s coalition with Israel’s far-right and their efforts to overhaul the nation’s judiciary. The Israeli shekel has slumped toward a seven-year low in recent days.

“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,” said Hasnain Malik, a Dubai-based strategist at Tellimer, a provider of research and data on emerging markets to investors. “That will remain a vulnerability for all Israeli asset prices.”

Hamas’s incursions struck Israel at a fragile moment. Netanyahu’s efforts to weaken the judiciary have sparked mass protests and unnerved foreign investors. The shekel is already one of the biggest losers this year among a basket of 31 major currencies tracked by Bloomberg.

Netanyahu’s plans for greater regional integration with Arab and Muslim neighbors now also face a severe test. Israel is in negotiations with the US and Saudi Arabia on a complex three-way deal in which Washington would offer security guarantees to Riyadh.

Israel has also been talking with Turkey and others about gas exports to Europe along with corridors for trade from Asia.

“Regional risk goes up for a while,” said Tellimer’s Malik.

The fighting has left hundreds dead on both sides. Palestine sus-pended trading on its stock exchange on Sunday, citing “security conditions in the Palestinian territories,” and will reopen on Monday.