Yemen is in the grips of a worsening civil war, with fighting intensifying between ousted Sunni President Abd-Rabbuh Mansuh Hadi and the Shiite, anti-American rebels who seized power in a coup in January.  The rebels also face violent resistance from Sunni tribesman and competing Islamist extremists in the south. Last week, suicide bombers opposed to the rebels killed 137 people and injured more than 300 others during Friday prayers in the Yemini capital of Sana'a.  On Monday, the Saudi Arabian foreign minister said the GCC would take "necessary measures" to resolve the Yemeni conflict, according to media reports. This is in response to requests for military assistance from Hadi, who belongs to the same Muslim Sunni sect as Saudi Arabia's leaders.  Levin and Bajaj warned that the turmoil in Yemen had the potential to spill over into nearby countries.  "We have no edge or ability to predict whether or not the conflict in Yemen will spill over into neighboring countries or impact other GCC countries," they said.  "However, we observe that the scope and pace of events in the Middle East (the 'Arab Spring' and its attendant local conflicts, the spread of ISIS, etc.) over the past few years has taken almost everybody by surprise."  Read MoreWhy the chaos in Yemen matters to investors  The analysts noted that the risk of unrest spreading could hit stocks in the GCC—which has previously been seen as something of a safe haven in an "otherwise tumultuous part of the world." This in turn has benefited countries' economies and banking systems.  "We conclude that the tail risk for the GCC bank stocks has grown fatter," Levin and Bajaj said. "That is, although the likelihood that regional events will negatively impact the GCC remains very low in an absolute sense, the likelihood is greater than it was a month or two ago."
Civil strife and terrorism in Yemen could pose a greater threat to the Gulf countries of the Middle East than tumbling oil prices, a major bank said.