Indian equity markets are bracing for heightened volatility as escalating tensions in the Middle East push crude oil prices higher and revive concerns over inflation, trade balances and fiscal stability.
Brokerage JM Financial said the coordinated US–Israel strikes on Iran mark a sharp escalation in regional hostilities, significantly raising the risk of supply disruptions. The brokerage noted that Brent crude has already climbed to multi-month highs and warned that any sustained disruption in shipping activity through the Strait of Hormuz could drive prices well beyond current levels.
Nearly 20 per cent of global oil flows and over 40 per cent of India’s crude imports pass through the Strait of Hormuz, making it a key vulnerability for the domestic economy. JM Financial said that every $1 per barrel increase in crude prices could raise India’s annual import bill by roughly $2 billion. While upstream oil and defence companies may see relative support, sectors such as oil marketing companies, paints, aviation and chemicals could come under pressure from higher input costs. The brokerage added that the sustainability of Brent above $80 per barrel and the duration of any supply disruption would be critical variables for Indian equities.
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, echoed concerns over the immediate fallout. “The near-term impact will be negative. Crude has spiked and if the crude price remains high for an extended period of time, our balance of trade and balance of payments will be impacted since we import around 85 per cent of our oil requirements. OPEC Plus will scale up production and try to stabilise prices. If the strait of Hormuz is closed (there are unconfirmed reports of this), the crude price can spike further. Trump may forcefully reopen this. But that requires boots on the ground which will escalate tensions further, he added.
On the medium-term outlook, Vijayakumar said, “Medium-term impact on the market will depend on how long the conflict lasts. We don’t know the answer to this question. After crippling Iran, US and Israel may make a strategic withdrawal. The market will react very negatively. In a weak market, upstream oil companies and defence stocks will do well.”
Market participants expect a gap-down opening if tensions intensify further, with risk-off sentiment dominating trade. Investors will closely track crude price movements, developments around shipping routes in the Gulf region and any signals of de-escalation, as these factors are likely to dictate the trajectory of Indian equities in the near term.