Brent Crude surged nearly 29% to an intraday high of $119.46 per barrel before trimming some gains. Meanwhile, West Texas Intermediate (WTI) rallied around 31% to touch $119.43 per barrel.
Notably, oil prices crossed the key $100-per-barrel mark for the first time in nearly two years, since the outbreak of the Russian invasion of Ukraine.
Markets tumble as crude spikes
The surge in crude oil prices triggered a sharp selloff in Indian equities on Monday. The benchmark BSE Sensex fell nearly 2,400 points shortly after opening, while the Nifty 50 dropped more than 700 points, before recovering some of the losses. All sectoral indices were trading in the red.
“There is excessive volatility now. If the conflict lingers and crude prices remain elevated, India’s macroeconomic indicators will be impacted. Whether higher prices are passed on to consumers or not, inflation will rise. Fiscal deficit and current account deficit will widen,” said V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited.
Sectoral impact
According to Vijayakumar, the worst-hit segments will be sectors that rely heavily on crude-derived inputs, including paints, adhesives and tyres. Oil marketing companies may also face pressure as rising crude prices increase their cost burden.However, some domestic consumption sectors could remain relatively insulated from the crisis.
“Domestic consumption segments such as banking and financials, automobiles, telecom and cement may not be significantly impacted. Defence and pharmaceuticals are also likely to remain relatively resilient. Long-term investors with a high risk appetite can selectively accumulate stocks in these themes,” he added.
According to CRISIL Ratings, higher crude prices could benefit upstream oil producers, which may see improved revenues while their operating costs remain largely stable. Shipping companies may also gain due to higher charter rates as vessel availability tightens and shipping routes become longer.
The broader economic risk
Despite the sector-specific impact, rising oil prices could have a broader effect on the economy and financial markets.
Moody’s Ratings warned that if the Middle East conflict continues to disrupt supplies and push energy prices higher, India could face pressure on the rupee, inflation and its current account deficit.
“Costlier energy imports would weaken the rupee, raise inflation, worsen the current account balance and complicate monetary policy as well as fiscal management if they lead to expanded subsidies,” the agency said.
It added that a prolonged disruption in navigation through the Strait of Hormuz could lead to sustained supply shortages, keep Brent prices above $100 per barrel, tighten global financial conditions and slow economic growth.
Rising inflation expectations could also reduce the flexibility of the Reserve Bank of India to ease monetary policy.
Conclusion: Patience may be key
Even though geopolitical conflicts can trigger sharp market reactions, history suggests their impact on equities is often temporary.
According to Vijayakumar, investors should avoid panic reactions and maintain a long-term perspective.
“Geopolitical events typically have only a short-term impact on markets. Investors need to remain patient,” he said.
(Disclaimer: Recommendations, suggestions, views and opinions expressed by experts are their own and do not necessarily represent the views of The Economic Times.)