A Geopolitical Shock, Oil Exposure, and Heterogeneous Equity-Market Responses: Firm-Level Evidence from Saudi Arabia

We study the firm-level equity-market response of 230 Tadawul Main Market firms to the outbreak of the U.S.–Israeli military action against Iran on 28 February 2026, using a market-model event study with the domestic TASI benchmark. Because a single geopolitical shock combines a market-wide risk-premium effect with an oil-price effect that accrues to oil-linked firms, the aggregate response is theoretically ambiguous, and we find that its sign in fact depends on how firms are weighted. Equal-weighted abnormal returns are negative around the event, whereas a value-weighted portfolio, dominated by the large oil-linked firms, rises significantly, reaching a cumulative abnormal return of +4.65% at the [0, +2] window (versus −2.84% equal-weighted). In cross-sectional regressions controlling for firm size, leverage, profitability, and sector fixed effects, oil-linked firms earn cumulative abnormal returns approximately 9.0 percentage points higher than non-oil firms over the [0, +5] window, a differential robust to the exclusion of Saudi Aramco, to median (robust) regression, to winsorization, and to leave-one-out estimation. We show that inference in this common-event setting is sensitive to cross-sectional dependence: under a Kolari–Pynnönen adjustment, only the immediate [0, +1] and [0, +2] aggregate windows remain statistically significant, so we treat the cross-sectional differential, rather than the aggregate response, as the paper’s most robust result. Overall, the evidence documents economically large cross-sectional heterogeneity that aggregate index responses conceal; it is consistent with, but does not separately identify, a common risk-premium effect and an oil-related cash-flow effect.