The escalating conflict in West Asia is casting a long shadow over the Indian stock market, injecting volatility and uncertainty into investor sentiment. As tensions between Iran and Israel intensify, Indian equities are experiencing a ripple effect, driven by rising crude oil prices, disrupted trade routes, and a general sense of geopolitical risk.
On Friday, June 13, 2025, India's benchmark Sensex closed 573 points lower, reflecting the immediate impact of the escalating tensions. This downturn underscores the sensitivity of the Indian market to events in the West Asia, a region crucial for India's energy security and trade relations. Experts anticipate continued volatility as the conflict unfolds, with market players closely monitoring developments and key central bank decisions.
One of the primary concerns is the surge in crude oil prices. India imports over 80% of its oil needs, making it particularly vulnerable to price fluctuations triggered by geopolitical instability. The Strait of Hormuz, a critical passage for global oil supply and LNG shipments, is a potential chokepoint. Any disruption to this route could lead to a significant increase in oil prices, exacerbating India's fiscal and current account deficits and contributing to inflationary pressures. Some experts predict that Brent crude could rise above $90 per barrel before potentially retreating in 2026 as supply recovers.
Beyond oil, the conflict is also disrupting trade routes and impacting India's exports. Trade with countries directly involved in the conflict, such as Israel, Jordan, and Lebanon, has already seen declines. For example, exports to Israel fell sharply by 63.5% between January and July 2024. The increased voyage time is expected to increase freight charges as well. Disruption in key shipping lanes could lead to higher shipping costs and delays, further straining trade. Sectors like textiles, electronics, agriculture, and oil are particularly vulnerable to these trade disruptions.
In times of uncertainty, investors often flock to safer havens, such as gold. Rising gold prices have been observed, which has been fuelled by speculation about a disastrous downturn in the markets.. Data indicates that foreign investors have pulled out significant amounts of money from the Indian market, with some of these funds potentially being redirected to China due to more attractive valuations.
However, India's strong foreign exchange reserves, which reached an all-time high of $700 billion, and its cordial relations with oil-producing nations provide some cushion against potential shocks.
Certain sectors of the Indian stock market are expected to be more affected than others. The oil and gas industry is likely to face the most immediate impact due to potential disruptions in oil supply and rising prices. Companies like Bharat Petroleum, Indraprastha Gas, and Hindustan Petroleum could be adversely affected. The pharmaceutical sector may also experience disruptions due to trade route disruptions and logistical challenges, potentially impacting companies like Sun Pharma, Dr Reddy, and Cipla. Conversely, geopolitical tensions often lead to increased defense spending, potentially benefiting companies involved in defense production and procurement, such as Bharat Electronics and Hindustan Aeronautics.
Overall, the West Asia conflict poses a complex set of challenges for the Indian stock market. While the full extent of the impact remains uncertain, investors should remain vigilant and adapt to the evolving geopolitical and trade landscape. Market volatility is expected to persist, and careful monitoring of crude oil prices, trade flows, and global economic conditions will be crucial for navigating these turbulent times.
