Kuwaiti and Saudi stocks led Gulf stocks sharply lower in late afternoon trade on Sunday in the wake of a U.S. drone strike in Baghdad that killed Iran's military commander.

Shares of oil giant Saudi Aramco fell 1.7% to their lowest level since listing last month in a record initial public offering (IPO).

Aramco shares dropped to 34.55 riyals a share, the lowest level since it started trading last month.

They have lost almost 11% since hitting a high of 38.70 riyals.

The IPO was priced at 32 riyals per share, valuing Aramco at $1.7 trillion, making it the world’s most valuable company.

Iranian military commander Qassem Soleimani, the architect of Tehran's overseas military operations was killed on Friday in a U.S. drone strike on his convoy at Baghdad airport.

The Kuwaiti index, the best performer in the region in 2019, was down nearly 4.1%, while Saudi stocks plunged 2.2%.

Dubai stocks were down 3.1% with property firm Emaar Properties falling 3.7%. The Abu Dhabi index fell 1.41%.

Banks also took a beating, with Al Rajhi Bank down 2% and Samba Financial Group down nearly 3%.

"A U.S.-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% on Friday following Soleimani's killing, Refinitiv data showed.

Regional bond spreads are expected to widen on Monday, when international debt markets open, because of increased political risk, a debt banker said.

Oil prices jumped to $63.05 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.