DUBAI, March 26 (Reuters) - Middle East stock markets, especially Saudi Arabia, may remain volatile on Thursday after the kingdom and its allies launched air strikes in Yemen, escalating the military conflict there.
Warplanes attacked the Yemeni capital Sanaa's airport and its al Dulaimi military airbase on Thursday after the Houthi militia and its army allies advanced towards the city of Aden a day earlier.
Yemen's slide toward civil war has made the country a crucial front in mostly Sunni Saudi Arabia's rivalry with Shi'ite Iran, which Riyadh accuses of stirring up sectarian strife throughout the region and in Yemen with its support for the Houthi militia.
The crisis now risks spiraling into a proxy war with Shi'ite Iran backing the Houthis, and Saudi Arabia and the other regional Sunni Muslim monarchies supporting Yemeni President Abd-Rabbu Mansour Hadi. Egypt is providing political and military support for the Saudi-led operation.
Saudi Arabia's main index tumbled 5.0 percent on Wednesday amid reports that the kingdom was amassing troops and military equipment on its border with Yemen and other Gulf markets also fell, indicating that investors were increasingly concerned about the conflict's impact.
However, even major intervention in Yemen by Saudi Arabia and its allies would probably not do major long-term damage to economies and markets, given Yemen's remoteness, Gulf states' lack of economic exposure to Yemen, and their firm control over their domestic security.
Many analyts attributed Wednesday's slide of the Saudi bourse more to profit-taking and concern about upcoming first-quarter earnings than to the geopolitical situation.
"Petrochemical earnings could weigh into the start of Q2, but recent events in Yemen are unlikely to impact the (Saudi) market opening" to direct foreign investment later this year, Emad Mostaque, strategist at Ecstrat, an emerging markets consultancy, wrote in a note.
"In a similar vein there may be some jitters in Egypt, but other Gulf markets are likely to remain solid, with potential upside for Oman now that Sultan Qaboos (who did not send a representative to talks on Yemen) has returned.
"It is difficult to see significant deterioration in any regional company operating performance as a result of this, or potential near-term blowback to foreign actors intervening in Yemen."
Also, the news from Yemen has prompted oil prices to surge: Brent is up 2.9 percent near $58 per barrel and U.S. crude has shot up 3.7 percent to around $51 in Asian trade, which is positive for the Gulf states' economies.