Gulf stocks rattled by OPEC production put

Stocks in the oil-rich Gulf were buffeted in volatile trade on Monday, after hitting milestone lows the day before as the region reacted to the OPEC decision not to cut production and a $10 a barrel drop in crude prices.

Saudi Arabia's benchmark index, the largest in the Middle East, managed to rebound following its 4.8 percent fall on Sunday.

Petrochemical stocks in particular were hammered, with bellwether and global manufacturing heavyweight SABIC hitting the daily limit of a 10 percent fall. The firm's chief executive, Mohamed Al-Mady, told CNBC on the sidelines of the GPCA conference last week he was convinced the drop in oil prices would prove temporary.

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It was a similar picture for the rest of the Gulf, with Dubai dropping another 2.2 percent on Monday ahead of a two-day holiday. Nerves are likely to be tested again as Brent crude resumed its slide, losing 2.7 percent to trade at $68.25 by early Monday morning.

Read MoreOil falls as OPECopts not to cut production

Traders in Gulf stocks are seeing the equity correction as a sign that the current four-year oil price lows may last longer than initially thought. Oil revenues fund the majority of the fiscal budget of Gulf governments and spending has increased substantially since the onset of the Arab Spring.

"Regional equity markets easily overshoot on momentum in this part of the world, on the way up and on the way down, so it's reasonable to expect more short term pain," Ryan Ayache, Middle East Research Analyst at Renaissance Capital explained to CNBC. "But soon enough the focus will turn from selling to buying as there are very sound companies out there".

Jaap Meijer, Managing Director, Equity Research at Dubai-based Arqaam Capital, told CNBC that the lower oil prices would have "major ramifications" for nominal gross domestic product (GDP).

"However, for now we don't forecast any impact on non-oil GDP growth as we expect governments to use their reserves to cushion the impact of lower revenues," he said.

Read MoreSaudis to push OPECto cut output: CNBC survey

Among the most vulnerable Gulf states are Bahrain, Oman and Saudi Arabia. But Middle East investment bank EFG Hermes said in a research note that even at 70 dollars per barrel, Saudi Arabia's strong fiscal buffers of $746 billion in foreign reserve assets meant it could afford to finance the equivalent budget deficit of $55 billion for 13 years.

"We expect Saudi Arabia to maintain its spending on public social infrastructure and strategic projects that are aimed at diversifying the economy and creating jobs for nationals, notwithstanding the lower oil prices," the note read.

While Gulf oil exporters may continue to suffer, the current turmoil in the oil market opens the door to a range of opportunities in other market for investors. Arqaam's Meijer told CNBC.

"We are strongly overweight on UAE, one if the most diversified economies, and Egypt, who strongly benefits from lower oil prices coupled with fiscal consolidation comprising four percent of GDP," he added.

- By CNBC's Yousef Gamal El-Din