US strikes on Iran may rattle markets: Will Nifty, Sensex react to escalating geopolitical risk?
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Indian equities closed the week 1.6% higher, recovering from a three-day losing streak as markets bounced back sharply on Friday. However, the mood may turn cautious on Monday amid rising geopolitical tensions, following the U.S. airstrikes on Iranian nuclear sites.On Saturday, U.S. President Donald Trump confirmed that American forces carried out coordinated airstrikes on three nuclear sites in Iran —Fordow, Natanz, and Esfahan—in an effort to dismantle Tehran's nuclear capabilities. 'All planes are now outside of Iran's space. A full payload of bombs was dropped on the primary site, Fordow. All planes are safely on their way home,' Trump said in a social media post.The escalation is expected to weigh heavily on risk sentiment globally. According to Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, 'Markets have gradually become accustomed to geopolitical tensions. That's why, despite rising conflict, Indian markets ended the week on a positive note. However, investors are likely to remain cautious and range-bound near the 25,000 level on Nifty until there's more clarity on Iran's response.'Bathini added that Middle East developments and crude oil dynamics will be key drivers in the coming days. 'Any sharp spike in oil prices could negatively impact Indian equities in the short to medium term.'Crude oil prices have already been on the rise amid tensions in West Asia. Brent crude has surged over 15% to $77 per barrel, while WTI crude has jumped 17% to $74.9 in the past eight trading sessions. The latest U.S. strikes could add fuel to the rally, particularly if Iran retaliates or moves to block the Strait of Hormuz—a vital choke point through which nearly 20% of global oil flows.A surge in oil prices may not only raise inflationary pressures but also reduce the likelihood of near-term rate cuts, which could further dampen market sentiment.While the dollar has weakened this year amid fears of declining U.S. exceptionalism, analysts suggest that direct American involvement in the Iran-Israel conflict could temporarily boost the greenback due to a flight to safety. However, if the conflict widens, the dollar's direction will depend on the broader risk sentiment and U.S. economic data.Foreign institutional investors (FIIs), who were net buyers in May with Rs 19,860 crore inflows, have turned cautious in June. As of June 20, they have sold shares worth Rs 4,192 crore, according to NSDL data.Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services , said, 'FPI flows are likely to remain volatile and sensitive to geopolitical risks, especially with the West Asia war escalating.'A strong dollar and movement in U.S. bond yields could also impact FII sentiment in the near term."25k is indeed a daunting challenge. Previous attempts to clear the same had proved to be short-lived as there was hardly any follow through momentum, thus leading to a sharp withdrawal. Hence the re approach of the 25k mount is accompanied by concerns of sustainability. Being at the upper Bollinger band as well, it would require further momentum to continue the uptrend. ADX at 13.2 does not indicate strong momentum either. Nevertheless, upswing attempts may be seen initially, but may not clear the 25200-460 band. Alternatively, inability to float above 25045 could see dips, but will wait for 24865 to switch sides," said Anand James of Geojit.Also Read: $2.4 trillion worth of gold! India's household hoard is 6x Pakistan's economy (Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
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Mint
28 minutes ago
- Mint
US strike on Iran raises oil shock, capital flow risks for India's economy
New Delhi: The flare-up in West Asia following US missile strikes on Iran's nuclear facilities has heightened geopolitical tensions and intensified external risks to India's economy, even as many analysts say the escalation may prove short-lived. At stake for India is the potential fallout from surging oil prices, a widening current account deficit, higher energy and shipping costs fuelling domestic inflation, investor risk aversion, capital outflows, and broader risks to economic growth. 'The bigger impact will be on sentiment. However, oil intensity has been going down structurally. For India too, the share of oil imports in total imports has come down from 21% in 2018 to 16.5% in 2025," said Sachchidanand Shukla, group chief economist at Larsen & Toubro. Read this | Mint Primer: What if the US joins Israel's war with Iran? Shukla added that India can absorb oil prices up to $85 a barrel without triggering large macro imbalances. 'There is no need to panic and one needs to keep an eye on how the situation evolves," he said. In a televised address on Sunday (India time), US President Donald Trump confirmed the direct American assault on Iran's nuclear programme, ending days of speculation about Washington's entry into the Israel-Iran conflict. He warned that further strikes could follow. 'Remember, there are many targets left. Tonight was the most difficult of them all by far, and perhaps the most lethal. But if peace doesn't come quickly we will go to those other targets with precision, speed and skill," Trump said. Oil price spike the immediate risk A sustained rise in oil prices remains the most visible risk for India, which relies on imports for nearly 85% of its crude oil needs. Higher global prices can widen India's current account deficit, fuel domestic inflation, trigger risk aversion among investors, and slow down growth. 'Every sustained 10% rise in oil price versus the baseline can lower India's GDP by 15 basis points (bps) and raise inflation measured by Consumer Price Index (CPI) by 30bps. On the other hand, it can reduce global GDP by 15 bps and raise CPI by 40 bps which can impede the rate cut trajectory," explained Shukla. While crude prices have already risen from $64–65 per barrel to $74–75 since the Israel-Iran conflict erupted on 13 June, some offsetting factors remain in play. Read this | US attack on Iranian nuclear sites roils oil market, India braces for possible price surge Experts noted that oil supply from the Organization of the Petroleum Exporting Countries Plus (Opec+) is improving as members unwind voluntary production cuts. Crude output from Opec+ rose by 180,000 barrels per day in May compared to April, according to the cartel's latest monthly oil market report. This production rebound, experts said, could help cap sharp price spikes, provided the conflict does not escalate further. 'The current flare-up may be short-lived and could even mark a turning point in the West Asia crisis towards its early closure, given the substantial disparity in conventional military capabilities, though the complex regional dynamics suggest multiple pathways for conflict evolution," said Rishi Shah, Partner and Economic Advisory Services Leader, Grant Thornton Bharat. 'As things stand today, there may be regional disturbances but these appear unlikely to translate into a major negative shock for India's economy," said Shah. On the trade front, while treaty negotiations continue, commercial flows seem to be adapting and progressing despite the tensions, he added. "Therefore, based on current developments and assuming the conflict remains contained, we expect the net external impact on India's growth trajectory to be relatively muted in the near term — though this assessment remains contingent on the conflict not escalating significantly or disrupting critical energy supply routes," said Shah. Prolonged conflict could hit growth Economists warn that a prolonged conflict could have deeper consequences. 'For oil-importing countries like India, this means slightly higher inflation and increased fiscal costs. While we have some buffer, with inflation currently below 4%, expectations have suddenly firmed up," said NR Bhanumurthy, director of the Madras School of Economics. Bhanumurthy cautioned that the current account deficit could widen not just due to the oil import bill, but also from potential pressure on remittances and capital flows. 'CAD will be a key concern going forward," he said, adding that fiscal support may be needed to absorb part of the oil price shock. 'A sustained flare-up in the conflict poses upside risks for estimates of crude oil prices, and India's net oil imports and the current account deficit. A $10/bbl increase in the average price of crude oil for the fiscal will typically push up net oil imports by ~$13-14 billion during the year, enlarging the CAD (current account deficit) by 0.3% of GDP," rating agency Icra Ltd had noted in an earlier report. Oil marketing companies and the government can absorb some of the costs in the short term, Bhanumurthy said. 'There will be fiscal implications, but we do have some fiscal space as we have exceeded fiscal targets in the last two years," he added. A sharp oil price rise could also weigh on foreign inflows and hurt domestic investment sentiment, he warned. A similar note of caution was sounded by Madan Sabnavis, chief economist at Bank of Baroda, who said that if crude prices stay above $80 for long, the trade deficit will widen and the rupee will come under pressure. "Wholesale inflation will rise accordingly, but the impact on retail inflation will depend on how the government manages fuel prices," he said, adding that excise cuts, if implemented to shield consumers, would widen the fiscal deficit — 'one that can be absorbed." India's current account deficit edged up to $11.5 billion, or 1.1% of GDP, in Q3 FY25 compared to $10.4 billion a year earlier. Retail inflation eased to 2.82% in May, while wholesale price inflation fell to a 14-month low of 0.39%. Icra Ratings on Friday warned that oil is expected to average between $70 and $80 per barrel in FY26, and any sustained rise beyond current levels could weigh on India's growth outlook. Shipping watches Hormuz chokepoint The Strait of Hormuz remains a key chokepoint for global energy and container trade, with Indian shipping companies monitoring the situation closely. 'But operations and movement of ships as of now has remained unaffected in the region. We have not yet received any alerts from either UK Maritime Trade Operations that patrols the area or the Indian Directorate General of Shipping," said Anil Devli, CEO, Indian National Shipowners' Association. Even before the latest flare-up, some ships had begun avoiding the strait, pushing up freight rates and crew costs amid rising security risks. Read this | Mint Explainer | Strait of Hormuz: Will Iran shut the vital oil artery of the world? Any blockade could spike global energy prices, disrupt supply chains, and hit container trade across the Persian Gulf, South Asia, and East Africa. India is also watching its strategic asset in the region — Chabahar Port in Iran — closely. 'Operations at the port, located near Iran's southeastern border with Pakistan, remain unaffected and normal," an India Ports Global Ltd official said. Meanwhile, Adani Group's Haifa Port in Israel remains fully functional despite the ongoing conflict. 'Earlier strikes caused minor shrapnel damage nearby, but operations were unaffected," another official said. Haifa handles over 30% of Israel's imports and contributes about 5% to Adani Ports' revenue, though it accounts for less than 2% of cargo volumes. Rice exporters brace for fallouts Beyond oil, India's basmati rice exporters are facing uncertainty as Iran, a key buyer, may scale back purchases if tensions persist. Iran typically imports around 1 million tonnes of basmati rice annually from India, accounting for roughly a fifth of India's total basmati exports by volume. Several shipments are currently lying at Indian ports, with exporters hesitant to dispatch consignments amid growing uncertainty. "We are in a catch-22 situation. Amid escalation of tension, many of the exporters, whose shipments are lying at port have kept shipments on hold. If the current situation persists, exporters would be on the receiving end," said Satish Goel, President, All India Rice Exporters Association (AIREA). India's rice exports to Iran rose to $757.3 million in FY25 from $689.8 million a year earlier, accounting for three-fourths of India's total farm exports to the country. Also read | Javier Blas: An Israel-Iran war may not rattle the oil market The timing makes the situation especially sensitive — mid-June to mid-July is peak season for exports, just ahead of Iran's domestic harvest. 'This is a peak season, as in the middle of July Iran might temporarily ban shipments to protect their domestic farmers and ensure fair prices for their harvest," Goel added. 'This is a common practice, particularly during the harvest season, and is aimed at supporting local agriculture by reducing competition from foreign imports. The ban is usually lifted once the domestic harvest is sold." Vijay C Roy and Dhirendra Kumar contributed to this story
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Business Standard
29 minutes ago
- Business Standard
Blocking of Strait of Hormuz may impact India's energy procurement: Experts
Any blocking or disruption of traffic through the Strait of Hormuz -- a narrow passage connecting the Persian Gulf to the Arabian Sea -- will have significant global and regional impact, including for India's energy security, strategic affairs experts said on Sunday. Following the US bombing of three major Iranian nuclear sites, Tehran has indicated that closing the Strait of Hormuz for shipping is one of the options on the table to pressure its adversaries. Nearly 30 percent of global oil and a third of the world's LNG (liquefied natural gas) passes through the strait daily and its closure would immediately reduce global supplies triggering a spike in prices, they said. The closure of the narrow passage would have significant global repercussions across energy markets and it will impact India's energy security as well, Dr Laxman Kumar Behera, Associate Professor at Special Centre for National Security Studies at the Jawaharlal Nehru University, told PTI. Behera said any disruption in the critical shipping lane will majorly impact India's crude oil import from Iraq and to an extent from Saudi Arabia. Captain D K Sharma (retd), a former Indian Navy spokesperson who closely follows developments in the Gulf region, said Iran's threat to block the Strait of Hormuz could lead to significant disruptions in global oil trade. Any disruption in shipping traffic could impact insurance premiums, causing costlier rerouting of oil shipments, he argued. "Oil prices are expected to surge due to the increased tensions in the region, with some analysts predicting prices to reach USD 80-USD 90 per barrel or even USD 100 per barrel if Iran responds with retaliatory measures," he noted. Sharma also said that the currencies of the countries in the region may experience significant volatility, and investors may look for other stable markets. According to a recent analysis by the International Energy Agency, even a brief disruption of passage through the Strait of Hormuz will have a significant impact on oil markets. "With geopolitical and economic uncertainties affecting oil producers and consumers alike, oil supply security remains high on the international energy policy agenda," it said. The US on Sunday morning bombed three major nuclear sites -- Fordow, Natanz and Isfahan -- in Iran, bringing itself into the Israel-Iran conflict Later, President Donald Trump said the Iranian nuclear sites were "totally obliterated". Behera said Iran will also face economic consequences if it shuts down the Hormuz strait as such a move will severely cripple Tehran's exports. Since the start of Iran's hostilities with Israel, Iranian officials have spoken about the possibility of shutting the Strait of Hormuz. Mohammad Javad Hosseini, the deputy chief of mission at the Iranian embassy, on Friday said closing the Strait of Hormuz is an option. "We have many things on the table, but it doesn't mean that we are going to do it now. It depends on the situation and how the other players want to go. If they want to solve the problem, definitely some of these things will be put aside," he said.
India Today
36 minutes ago
- India Today
Here's how Iran could retaliate after US strikes on its nuclear program
Iran has spent decades building multi-tiered military capabilities at home and across the region that were at least partly aimed at deterring the United States from attacking it. By entering Israel's war, the U.S. may have removed the last rationale for holding them in could mean a wave of attacks on U.S. forces in the Middle East, an attempt to close a key bottleneck for global oil supplies or a dash to develop a nuclear weapon with what remains of Iran's disputed program after American strikes on three key decision to retaliate against the U.S. and its regional allies would give Iran a far larger target bank and one that is much closer than Israel, allowing it to potentially use its missiles and drones to greater effect. The U.S. and Israel have far superior capabilities, but they haven't always proven decisive in America's recent history of military interventions in the region. Ever since Israel started the war with a surprise bombardment of Iran's military and nuclear sites on June 13, Iranian officials from the supreme leader on down have warned the U.S. to stay out, saying it would have dire consequences for the entire should soon be clear whether those were empty threats or a grim a look at what Iran's next move might the Strait of HormuzadvertisementThe Strait of Hormuz is the narrow mouth of the Persian Gulf, through which some 20% of all oil traded globally passes, and at its narrowest point it is just 33 kilometres (21 miles) wide. Any disruption there could send oil prices soaring worldwide and hit American boasts a fleet of fast-attack boats and thousands of naval mines that could potentially make the strait impassable, at least for a time. It could also fire missiles from its long Persian Gulf shore, as its allies, Yemen's Houthi rebels, have done in the Red U.S., with its 5th Fleet stationed in nearby Bahrain, has long pledged to uphold freedom of navigation in the strait and would respond with far superior forces. But even a relatively brief firefight could paralyse shipping traffic and spook investors, causing oil prices to spike and generating international pressure for a US bases and allies in the regionThe U.S. has tens of thousands of troops stationed in the region, including at permanent bases in Kuwait, Bahrain, Qatar and the United Arab Emirates, Arab Gulf countries just across the Persian Gulf from Iran — and much closer than bases boast the same kinds of sophisticated air defences as Israel, but would have much less warning time before waves of missiles or swarms of armed drones. And even Israel, which is several hundred kilometres (miles) further away, has been unable to stop all the incoming could also choose to attack key oil and gas facilities in those countries with the goal of exacting a higher price for U.S. involvement in the war. A drone attack on two major oil sites in Saudi Arabia in 2019 — claimed by the Houthis but widely blamed on Iran — briefly cut the kingdom's oil production in regional alliesIran's so-called Axis of Resistance — a network of militant groups across the Middle East, is a shadow of what it was before the war ignited by Hamas' Oct. 7, 2023, attack on Israel outside of the Gaza Strip — but it still has some formidable 20-month war in Gaza has severely diminished the Palestinian Hamas and Islamic Jihad groups, and Israel mauled Lebanon's Hezbollah last fall, killing most of its top leadership and devastating much of southern Lebanon, making its involvement Iran could still call on the Houthis, who had threatened to resume their attacks in the Red Sea if the U.S. entered the war, and allied militias in Iraq. Both have drone and missile capabilities that would allow them to target the United States and its could also seek to respond through militant attacks further afield, as it is widely accused of doing in the 1990s with an attack on a Jewish community centre in Argentina that was blamed on Iran and Hezbollah.A sprint toward nuclear armsIt could be days or weeks before the full impact of the U.S. strikes on Iran's nuclear sites is experts have long warned that even joint U.S. and Israeli strikes would only delay Iran's ability to develop a weapon, not eliminate it. That's because Iran has dispersed its program across the country to several sites, including hardened, underground would likely struggle to repair or reconstitute its nuclear program while Israeli and U.S. warplanes are circling overhead. But it could still decide to fully end its cooperation with the International Atomic Energy Agency and abandon the Nuclear Nonproliferation Korea announced its withdrawal from the treaty in 2003 and tested a nuclear weapon three years later, but it had the freedom to develop its program without punishing insists its program is peaceful, though it is the only non-nuclear-armed state to enrich uranium up to 60%, a short, technical step away from weapons-grade levels of 90%. U.S. intelligence agencies and the IAEA assess that Iran hasn't had an organised military nuclear program since is widely believed to be the only nuclear-armed state in the Middle East but does not acknowledge having such InMust Watch
