Crude oil prices crossed the key psychological mark of $100 per barrel last week, the first time since Russia’s invasion of Ukraine in 2022. Despite attempts by the US administration to reassure markets, the conflict in the oil-rich Middle East continues to intensify.
Iran has warned that oil prices could surge to as high as $200 per barrel if the conflict escalates further. Mojtaba Khamenei, Iran’s new supreme leader and son of Ayatollah Ali Khamenei, described the Strait of Hormuz as a strategic “tool of pressure” that must remain shut during the conflict. In a message aired on state television, he also warned that US military bases across the region could face attacks as Iran seeks retaliation for casualties from the conflict.
Oil prices have risen amid growing expectations that the Strait of Hormuz may remain shut, disrupting global energy trade. The narrow 33-km waterway connecting the Persian Gulf and the Gulf of Oman carries more than 20% of the world’s oil and gas shipments, making it one of the most critical chokepoints in global energy markets.
What lies ahead for oil prices
Global crude oil prices could rise to $120 per barrel in the near term and potentially reach $150 per barrel if the war continues for over a month and geopolitical tensions remain elevated in West Asia, said Kayanat Chainwala, Assistant Vice President at Kotak Securities.
“Any prolonged disruption to this trade route will be bullish for crude oil and negative for other commodities, as it fuels inflation concerns and could delay interest rate cuts,” Chainwala said.A report by Nuvama also noted that crude prices could climb to $150 per barrel if the Strait of Hormuz remains closed for four to eight weeks. However, such extreme price levels could eventually lead to demand destruction and trigger alternative supply responses.The report added that Asian economies are likely to bear the brunt of the disruption, as nearly 13 million barrels per day (mbpd) of oil shipments to countries including China, India, Japan and South Korea pass through the Strait of Hormuz.
Meanwhile, Systematix Institutional Equities said global crude markets have entered a phase of heightened volatility over the past two weeks, driven by the destruction of oil and gas assets in West Asia, which has added a strong geopolitical risk premium to prices.
“Tanker freight rates and insurance premiums for vessels passing through high-risk zones have also surged, significantly raising procurement costs,” the brokerage said.
How Indian stock markets may react
The Nifty 50 fell 5.3% last week as the Iran–Israel conflict, a weakening rupee, persistent FII outflows and concerns over fuel supply weighed on sentiment. While Systematix expects near-term volatility to impact valuations, it continues to prefer Reliance Industries, Petronet LNG, Deep Industries and Gulf Oil as long-term bets.
According to Vinod Nair, Head of Research at Geojit Investments, market direction in the coming weeks will largely depend on developments in the Iran conflict and the trajectory of crude prices, given their implications for inflation, corporate margins, the current account deficit and RBI policy flexibility.
“A firm dollar and higher US bond yields may keep FIIs selective and volatility elevated. Selective value opportunities may emerge in fundamentally resilient and domestically driven sectors, while energy-sensitive segments could remain under pressure if crude prices stay elevated,” he said.
He added that domestic institutional buying has provided some cushion, but a sustained market recovery would likely require clear signs of geopolitical de-escalation, stabilisation in crude prices and improved clarity on fuel supply dynamics.
Siddhartha Khemka, Head of Research – Wealth Management at Motilal Oswal Financial Services, said market volatility is likely to persist as geopolitical tensions disrupt the energy market and keep risk sentiment fragile.
“Indian equities have seen a sharp correction in 2026 amid heightened global uncertainty, resulting in significant erosion of market value across segments,” Khemka said.
The Nifty 50 has declined over 11% so far this year, while the Nifty Midcap and Smallcap indices are down around 10% each. In March alone, the Nifty has fallen about 8%, marking its steepest monthly decline since the pandemic-driven crash of March 2020.
On the currency front, the Indian rupee recently hit a record low of Rs 92.45 against the US dollar as rising energy prices and risk-off sentiment heightened concerns about India’s current account deficit, given the country imports nearly 88% of its crude oil requirements.
Elevated oil prices have also intensified concerns around inflationary pressures, widening external balances and pressure on corporate margins, prompting investors to trim equity exposure and shift towards safer assets.
“Rate-sensitive and cyclical sectors such as banking, financial services and automobiles have seen notable selling pressure,” Khemka added.
Looking ahead, markets are expected to remain highly sensitive to developments in the West Asia conflict, movements in crude oil prices and trends in foreign fund flows.
“Persistent foreign outflows and elevated oil prices could keep sentiment cautious, while any signs of easing geopolitical tensions may provide relief to markets,” he said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
