How will Israel's attack on Iran impact the stock market, crude oil, gold?

Iran-Israel conflict: The S&P BSE Sensex slipped nearly 1 per cent, or 599 points to hit a low of 71,816 levels - down sharply from its 52-week high of 75,124.28 hit on April 09

Reports of Irsael's attack on Iran, in early hours of Friday, sent most Asian markets into a correction mode. The S&P BSE Sensex slipped nearly 1 per cent, or 599 points to hit a low of 71,816 levels - down sharply from its 52-week high of 75,124.28 hit on April 09.

In the broader markets, the BSE midcap and smallcap indices fell 1 per cent each in Friday’s intraday trade following the Israel and Iran’s conflict.

According to reports, Israel launched a missile attack on Iran on Friday in response to the latter's drone strike over the weekend. On its part, Iran has denied reports of any Israeli attack.

The development in West Asia is one of the key monitorable. The situation, analysts said, evolving. If things remain where they are and there is no retaliation from, then the nervousness should ease in a couple of days’ and things should be back to normal.

The US has indicated that there would be no direct intervention from their side, while the rest of the G7 nations had condemned the attack but not gone beyond this articulation. Iran, experts said, is anyway a country loaded with sanctions and hence there can be no significant change in the economic dynamics.

That said, the overall situation remains worrisome because while the escalation can lead to several countries supporting these two nations, the consequences on markets will be sharp, analysts said.

Israel - Iran war impact on crude oil

Crude oil, according to analysts, is what gets impacted immediately which is on the fringe of the nervous nineties. Iran, according to Madan Sabnavis, chief economist at Bank of Baroda, had a share of 4 per cent in total oil production in 2023 with the US, Saudi Arabia, Russia, Canada, China, Iraq, UAE, Brazil and Kuwait together accounting for about 68-70 per cent of total production.

"Depending on how OPEC reacts or any of these major suppliers, there can be a major shock to the oil economics. Once oil gets affected, the currency market would be under pressure. The rupee has held well to begin with but the RBI will be continuously monitoring the developments as this can be a trigger for volatility," he said.

Brent crude oil prices, meanwhile, surged past $90 a barrel, rising nearly 4 per cent in a day following reports of Israel's attack on Iran on Friday. Thus far in calendar year 2024 (CY24), Brent crude oil prices have shot up 20 per cent due to supply woes amid geopolitical concerns such as Israel's attack on Iran and developments at the Red Sea.

Russian refinery outages added to product market unease, while OPEC+ put pressure on some countries to increase compliance with agreed voluntary production cuts through 2Q24.

For 2024, global output, as per IEA's forecast, is expected to rise by 770 kb/d to 102.9 mb/d. Non-OPEC+ production will expand by 1.6 mb/d, while OPEC+ supply could fall 820 kb/d if voluntary cuts remain in place.

"Despite short-term fluctuations, crude oil prices are poised to find support from ongoing supply disruptions amidst Middle-East tensions," said Saish Sandeep Sawant Dessai, analyst for base metals at Angel One.

Israel - Iran war impact on stock markets

Indian stock markets have tumbled from their recent highs. The Sensex is now down nearly 4 per cent at 72,000 levels after hitting a 52-week high of 75,000 in early April.

The Nifty, too, has slipped 4 per cent from its 52-week high of 22,775 levels to 21,868 levels now.

From a technical standpoint, the index has plunged below its 50-double exponential moving average (DEMA) with a strong bearish candle formation, depicting an inherent weakness in the markets, analysts said.

The previous closure around 21,800 is likely to be seen as the pit stop for the bears, and if bulls could not barge on there, then we may test the 100-DEMA placed around 21600 on an immediate basis, technical analysts said.

"On the flipside, a series of resistance could be seen from 22,150-22,200, followed by the 20-DEMA at 22,300 zone. The undertone certainly favors the bears now and any rise should be seen as an opportunity to either exit longs or to look for bearish bets in the index. Any relief from the global markets could only provide some aid to the ongoing carnage; hence, a strong watch is required over any developments. Meanwhile, it is advisable to refrain from aggressive bets until the uncertainty subsides," said Sameet Chavan, head of research for technical and derivatives at Angel One.

Israel - Iran war impact on gold prices

Gold prices continued to climb, with the prices of the yellow metal nearing the $2,400 per troy ounce (oz) levels in early morning deals on Friday. Spot gold price is currently hovering around $2,395 levels.

Gold prices have been on an uptrend in the last few months, rising nearly 30 per cent to $2,400 per oz now. Analysts expect gold prices to continue their marh upwards amid geopolitical concerns.

"Comex Gold demonstrated strength from lower levels around $2350. However, significant resistance is observed at the $2400 mark, limiting further gains. Ongoing geopolitical tensions in West Asia are expected to keep gold volatile. In the event of an escalation in the situation, the dollar may find support, dampening gold prices. Conversely, if tensions ease between Iran and Israel, gold could experience profit booking, potentially driving prices down towards Rs 69,500 per 10 grams (current Rs 72,650)," said Jateen Trivedi, vice-president and research analyst for commodity and currency at LKP Securities.