Bank and building contractor shares were among those hardest hit
Oil prices have fallen to an eight-month low of less than $90 a barrel.
Analysts say the decline reflects concern that the financial crisis in the US and Europe will lead to a global slowdown and a drop in demand for oil.
US crude settled down $6.07 at $87.81 a barrel after hitting an eight-month low of $87.56. London Brent crude fell $6.57 to $83.68.
Shares on Gulf stock markets also fell sharply. Banks and building contractors were among those shares hardest hit.
The Saudi Arabian stock market, the largest in the Arab world, dropped more than 9%.
Other markets saw falls of between 4% and 6% - Dubai was 4.5% down, Abu Dhabi and Qatar 4%, while Kuwait shed 3.5% and Oman dipped 6%.
The sharp falls, the biggest single-day losses in several years, came on the first day of trading after the Eid al-Fitr holiday that ends the month of Ramadan.