DUBAI (Reuters) - The cost of insuring against a potential debt default by Saudi Arabia has soared by a sixth since Friday’s killing by a U.S. drone of Iranian commander Qassem Soleimani, bearing the brunt of a broader reaction in Middle Eastern markets.

Conventional spreads on five-year Saudi credit default swaps (CDS) were at 64 basis points on Monday, up from 55 bps on Jan. 2, according to IHS Markit.

Saudi Arabia is Iran’s arch enemy in the region, and that jump was slightly higher than in September last year after an attack on the kingdom’s oil facilities that in its initial phases halved its oil output.

Tehran has called the U.S. strike at Baghdad airport an act of war and Iranian commanders have issued a range of retaliation threats since, though they have not offered specifics about how they will respond.

Rating agency Moody’s said on Monday the credit implications of a military conflict between Iran and the United States would depend on factors such as duration and scope, but that Iraq and debt issuers in the Gulf and potentially Lebanon could be affected.

“The main channels of credit transmission would be the immediate effect of the shock to exports and fiscal revenue should hydrocarbon production capacity be impaired significantly and durably,” it said.

Oil prices extended gains on Monday, with Brent crude futures LCOc1 soaring to a high of $70.74 a barrel amid concerns about the possible impact of the crisis on supplies.

International bonds issued by Saudi Arabia XS1791939736=TE and Aramco XS1982116136=TE were yielding around 10 basis points more at the long end of the curve when compared to their levels before the strike, while the state oil giant's share price touched an all-time low.

Saudi sovereign debt securities due in 2049 were shedding around almost 1 cent in early trade on Monday.

Fallout from the drone strike was also evident in other Gulf debt markets, though generally far less marked, with Dubai’s corresponding CDS only 1 basis point higher and Abu Dhabi’s CDS spreads increasing to 37 bps from 34 last week.

A Dubai-based debt banker said any potential plan by regional borrowers to issue new paper would likely be delayed amid market volatility.

“A lot of foreign investors are headline-driven so they’ll be reluctant to touch the region while things are so tense,” he said, declining to be named.

Saudi Arabia had previously said it was looking to issue new U.S. dollar-denominated debt - needed for budgetary purposes - early this year.

“The greater the escalation, the greater the Gulf Arab states’ need for funds, the greater the demand for debt but also the higher the price for new borrowing,” said Firas Modad, Middle East and North Africa director at IHS Markit.

Regional stock markets were mixed after taking a beating on Sunday. Saudi Aramco's 2222.SE shares however extended losses, falling 1.2% to 34.15 riyals at 0825 GMT, after hitting an intraday low of 34.05 riyals - the lowest since they began trading on Dec 11.