The United Arab Emirates has closed its main stock exchanges amid a widening conflict in the region following the United States and Israel’s attacks on Iran.

The UAE’s financial regulator on Sunday announced that its key exchanges in Dubai and Abu Dhabi would not immediately reopen after the weekend break amid the fallout of the US-Israeli attacks that killed Iran’s Supreme Leader Ayatollah Ali Khamenei.

The announcement that the Abu Dhabi Securities Exchange and Dubai Financial Market would remain closed on Monday and Tuesday came after the UAE was hit with hundreds of Iranian missile and drone attacks, including a strike on Abu Dhabi’s main airport that killed one person and wounded seven others.

The UAE’s Capital Markets Authority said in a statement that it would continue to monitor developments in the region and “assess the situation on an ongoing basis, taking any further measures as necessary”.

Here is all you need to know about the move.

Why has the UAE decided to shut its main stock exchanges?

The financial regulator did not elaborate on the rationale for its decision, only saying that it was taken in accordance with its “supervisory and regulatory role” in managing the country’s financial markets.

While closing the stock market outside of scheduled breaks is relatively unusual worldwide, especially in the era of electronic trading, it is not unprecedented.

Typically, when financial authorities halt stock trading during a crisis, it is because they are concerned about panic selling.

During periods of extreme volatility, such as wars and financial crises, investors often rush to sell their holdings to avoid suffering big losses.

As investors sell their stocks, the market value falls further.

This dynamic can spur a vicious cycle that, left unchecked, can lead to a full-blown market crash.

Since the US-Israeli attacks on Iran, stock markets around the world have seen significant – though not catastrophic – losses, while oil prices have risen sharply.

Saudi Arabia’s benchmark Tadawul All Share Index fell more than 4 percent on Sunday, while Egypt’s EGX 30 dropped about 2.5 percent.

In Asia, major stock markets closed lower on Monday, with Japan’s benchmark Nikkei 225 and Hong Kong’s Hang Seng Index down about 1.4 percent and 2.2 percent, respectively.

The practice of shutting the market to prevent panic selling is controversial among economists and investors.

Closing the market prevents investors from accessing cash they might need in a hurry.

Critics also argue that such closures only exacerbate the sense of panic they seek to prevent and distort important signals about the market.

“Investors don’t like uncertainty, and at times of market stress, liquidity is most important. It appears the UAE just took that away,” Burdin Hickok, a professor at New York University’s School of Professional Studies, told Al Jazeera.

“This move has the potential of diminishing the status of Dubai as a true major market and weaken investor confidence in the Dubai markets. There has to be some concern about capital flight and negative ripple effects.”

Has this happened before?

The UAE has closed its stock exchanges before, though not due to regional conflict.

In 2022, the UAE halted trading as part of a period of mourning declared to mark the death of President Khalifa bin Zayed Al Nahyan.

The emirate announced a similar pause following the death of Dubai’s ruler, Sheikh Maktoum bin Rashid Al Maktoum, in 2006.

“Historically, to the best of my knowledge, no Middle Eastern state, including Israel, has closed its stock exchange during a time of regional conflict,” Hickok said.

“In prior conflicts, Israel has modified hours of their exchange, but we are talking hours, not days.”

Other countries have shuttered their stock markets during periods of major turmoil in recent years.

After Russia launched its full-scale invasion of Ukraine in 2022, authorities shut the Moscow Exchange for nearly a month.

In 2011, Egypt shut its stock exchange for nearly two months as the country was grappling with the upheaval of the Arab Spring.

After the September 11, 2001, attacks on the United States, the New York Stock Exchange and the Nasdaq halted trading for six days, the longest suspension since the Great Depression.

How important is the UAE’s stock market?

The UAE is a relatively small player in the world of capital markets, though it has made significant inroads in recent years.

The Abu Dhabi Securities Exchange and Dubai Financial Market have a combined market capitalisation of about $1.1 trillion.

By comparison, the New York Stock Exchange, the world’s biggest bourse, has a market capitalisation of about $44 trillion.

Saudi Arabia’s Saudi Exchange, the biggest exchange in the Middle East, is valued at more than $3 trillion.

Still, the UAE’s stature among financial markets has been on the rise.

Before the latest crisis, UAE-listed stocks had been on a winning streak.

The Dubai Financial Market General Index, which includes companies such as Emirates NBD and Emaar Properties, rose more than 29 percent in the 12 months to February 27.

Haytham Aoun, an assistant professor of finance at the American University in Dubai, said while the UAE could see some outflow of foreign capital, the country’s economy remains on a strong footing.

“A temporary stock market closure will have a limited impact on long-term economic variables, provided the fundamentals remain strong,” Aoun told Al Jazeera.

“In the UAE case, it’s a precautionary intervention, and not a sign of structural weakness.”