Kuwaiti and Saudi-led Gulf stocks closed in the red on the first trading day in the wake of a US drone strike in Baghdad that killed Iran's military commander.
The Kuwaiti index, the best performer in the region in 2019, was down nearly 4.1 percent, while Saudi stocks plunged 2.2 percent on Sunday.
Saudi Arabia's Tadawul market, the largest in the region and one of the world's top 10, was trading 2.4 percent down with most shares in the red.
Trading in the Muslim Gulf nations takes place from Sunday to Thursday and the bourses were closed on Friday when military commander Qasem Soleimani was killed by a US airstrike in Baghdad.
Saudi Aramco, the world's biggest listed firm, shed 1.7 percent to trade at 34.55 riyals and its capitalization now stands at 1.84 trillion US dollars – well under the 2.0 trillion US dollars sought by Saudi rulers.
Banks also took a beating, with Al Rajhi Bank down 2 percent and Samba Financial Group down nearly 3 percent.
Aramco had priced its landmark initial public offering at 32 riyals (8.53 US dollars) per share and it soared the maximum limit to 35.2 riyals on its December 11 market debut.
"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.
Saudi credit default swaps, which investors buy as protection against default, rose by more than 13 percent on Friday, Refinitiv data showed.
Oil prices jumped to 63.05 US dollars 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.
Tokyo stocks opened sharply lower on Monday, playing catch up with global risk aversion. The benchmark Nikkei 225 index fell 1.67 percent, while the broader Topix index was down 1.31 percent.
Spot gold surged 1.6 percent to 1,575.37 US dollars per ounce in jittery trade on Monday and reached its highest since April 2013.