Why the Iran-Israel war has not hit Indian markets

Indian Express

5 hours ago

On Day 5 of the Middle East conflict, Israel claimed it had killed Iran's wartime chief of staff, adding to the long list of Tehran's war casualties, and threatened Ayatollah Ali Khamenei with the same fate as that of Saddam Hussein of Iraq.
With no end to hostilities in sight, President Donald Trump advised Iranians to 'immediately evacuate' the country's capital, and later denied having initiated talks with the Islamic Republic for a ceasefire.
And yet, as concerns increased in capitals around the world, stock markets, in India and elsewhere, seemed remarkably at ease — with investors showing no signs of panic. Why?
On June 12, a day before Israel first hit Tehran with missiles, the Sensex at the Bombay Stock Exchange closed at 81,691.98. Over the last five days (three trading sessions) the benchmark index has more or less maintained its level — it closed at 81,583 on Tuesday. That's a loss of just 108 points — 0.13 per cent — since the war broke out.
According to the US Energy Information Administration (EIA), at the end of 2023, Iran accounted for 12 per cent of global oil reserves, with the world's third largest proven reserves after Venezuela and Saudi Arabia. Iran also has the second largest reserves of natural gas after Russia.
However, Western sanctions have ensured that only around 4 per cent of global oil supplies comes from Iran. The primary customer of Iranian oil is China.
Since the war began on June 13, global Brent crude prices have risen by around 11 per cent — from levels of $67.34 per barrel on June 12 to around $74.6 per barrel on Tuesday.
This is a significant spike — and several global financial firms are projecting that oil could cross $100 per barrel in case the crisis continues and worsens.
Why are Indian markets not worried about the increase in oil prices?
Economists and market experts link it to India's comfortable position in terms of macroeconomics and inflation levels, and to the absence of any significant trade linkages with Iran. Concerns could arise if and when Israel targets Iranian oil installations — which it has not done so far.
'As of now, OPEC (the Saudi Arabia-led 12-member Organisation of Petroleum Exporting Countries) is already sitting on higher capacity. We have also not seen any major attack by Israel on oil facilities in Iran. Concerns may rise on oil prices if Iranian oil installations are hit, and there is a supply issue to China, which may lead to a real spike in crude prices. Inflation in India is at a comfortable level, and that is providing comfort to the markets, despite some increase in oil prices over the last five days,' Pankaj Pandey, head of research at ICICI Securities, said.
Bank of Baroda chief economist Madan Sabnavis said India's macroeconomic fundamentals could be impacted only if there is a significant spike in oil prices, which would inflate the import bill and hurt the fiscal situation, and lead to a rise in wholesale price index (WPI) inflation.
'As of now, global oil supplies are not impacted as Iran supplies only 4 per cent of the market and China is its only major customer. The 10 per cent rise in crude prices seen so far is not on account of supply concerns, but due to psychological factors. Other countries may step in if the situation escalates,' Sabnavis said.
He added that there is 'an overall feeling that this war, unlike the Russia-Ukraine war, may not continue for long as Iran may not have the wherewithal to continue the fight'. That too provides some comfort to the market, Sabnavis said.
Experts also pointed out that the buffer provided by the Indian government would likely ensure that even if global crude prices rise, there may not be an immediate impact on retail prices and consumer price index (CPI) inflation.
Inflation under control
In May, India's WPI declined to a 14-month low of 0.39 per cent from 0.85 per cent in April. In its monetary policy statement earlier this month, the Reserve Bank of India said that headline inflation based on CPI continued its declining trajectory in March-April and moderated to a near six-year low of 3.2 per cent (y-o-y) in April 2025.
The softening in overall inflation levels provide much needed comfort to Indian markets. The RBI also projected CPI inflation for FY 2025-26 at 3.7 per cent.
How does the price of oil impact the Indian economy?
A rise in crude prices poses inflationary, fiscal, and external-sector risks for the Indian economy. Crude oil-related products have a share of more than 9% in the WPI basket, and therefore, a 10 per cent increase in crude prices may lead to a 0.9 per cent increase in WPI inflation.
India imports around 85 per cent of its oil requirement. The share of oil imports in India's total import bill is more than 25 per cent. An increase in oil prices impacts the current account deficit, which is the difference between the values of goods and services imported and exported.
A rise in crude oil prices also leads to an increase in the subsidy on LPG and kerosene, pushing up the government's subsidy bill.