West Asia conflict keeps mkts on edge; Indices rebound as oil fears ease

Indian equities fell over 1 per cent on Monday amid fears that escalating tensions between the US and Iran could disrupt global oil supplies. But markets pared half their losses later in the day as Brent crude retreated from a five-month high, easing concerns about a potential supply shock. 

The Sensex dropped nearly 931 points (1.1 per cent) intraday before closing at 81,897, down 511 points (0.6 per cent). The Nifty settled at 24,972, declining 140 points (0.6 per cent).  Foreign portfolio investors (FPIs) were net sellers to the tune of ₹1,874 crore, while domestic institutions provided buying support worth ₹5,592 crore. 

 

Brent crude surged to $77 per barrel — its highest level in five months — after the US launched strikes on Iran’s nuclear facilities over the weekend, stoking fears of a prolonged conflict. Prices later eased to $76 as Iran showed no immediate signs of disrupting shipments through the Strait of Hormuz, a critical chokepoint for a fifth of the world’s oil supply. 

Any supply disruption in the region could send oil prices soaring, raising stagflation risks — a toxic mix of sluggish growth and high inflation. For India, which imports most of its crude, this could widen the fiscal deficit and complicate the Reserve Bank of India’s efforts to balance inflation control with growth support.

 

However, market experts said they do not expect the escalation in the conflict to lead to oil supply disruption, as it would risk antagonising other countries and driving them into the conflict. 

 

“We do not expect the escalation in the conflict to lead to a prolonged disruption of oil supplies in a way that could imperil global growth or cause significant challenges for central banks. As such, we believe that near-term downside in stocks could represent an opportunity for investors who are underallocated to equities to build a position,” said UBS in a note.

 

UR Bhat, cofounder of Alphaniti Fintech, said the closure of the Strait of Hormuz is unlikely, as Iran’s exports and imports would be affected.

 

“Iran is already crippled. The economic situation may worsen if they take such a step. Iran may continue to threaten to close the Strait of Hormuz, but it may not take such a drastic step. However, the bigger threat is Iran attacking US military assets, which would escalate tensions,” said Bhat.

 

More than two-thirds of Sensex stocks declined. HDFC Bank, which fell 0.9 per cent, was the biggest contributor to the Sensex decline, followed by Infosys, which dropped 2.3 per cent.

 

The market breadth was weak, with 2,273 stocks declining and 1,788 advancing.

 

Analysts said a rise in gas prices would impact gas-based power generation as well as fertiliser and gas-importing firms such as Petronet LNG.

 

“While these external risks are building, India’s robust foreign exchange reserves should cushion any significant impact on the external accounts,” Garima Kapoor, economist at Elara Capital, wrote in a note on Monday.

 

A recent directive from the Ministry of Petroleum and Natural Gas suggests that state-run oil-marketing companies (OMCs) have enough inventories to last several weeks.

 

Elara estimates that a $10-per-barrel increase in crude prices would slash gasoline and diesel gross marketing margins by ₹5.5 per litre. 

 

India sources about 35 per cent of its crude oil and 42 per cent of its liquefied natural gas (LNG) through the Strait of Hormuz, making any prolonged disruption a major concern, according to Yes Securities. “The immediate risk lies in shipment delays and increased freight charges.” However, India’s diversified sourcing strategy is providing a cushion, analysts at the firm said.

 

A prolonged supply squeeze could push India to rely more on costly spot LNG purchases, pressuring margins at importers like Petronet LNG, which depends heavily on long-term contracts from Qatar, Yes Securities’ analyst Harshraj Aggarwal said.

 

Still, India has built significant buffers. “Strategic crude reserves cover around 9–10 days of imports, while refiners are increasingly flexible with feedstock,” Aggarwal said. He, however, added that static retail fuel prices and rising input costs were squeezing margins for OMCs like BPCL, IOCL, and HPCL.

 

One of the impacts of any disruption in the Hormuz Strait could be on Di-ammonia phosphate supplies from Saudi Arabia, which recently became one of India’s major DAP import sources, experts said.

 

Experts warned that ammonia imports from Iraq, Kuwait, Bahrain, and Saudi Arabia could also be affected if transport through the strait is disrupted. Ammonia is a crucial raw material for producing DAP. India consumes about 10–11 million tonnes of DAP annually, with nearly half of that imported. Around 20 per cent of India’s DAP imports now come from Saudi Arabia, which previously were sourced from China. 

 

(With inputs from Dev Chatterjee and Sanjeeb Mukherjee)