Business

How the Iran-Israel Conflict Could Push Indian Inflation and Markets to the Edge

From oil prices to rupee volatility, India’s economy braces for global aftershocks

New Delhi, June 15: As the Iran‑Israel conflict escalates into direct strikes and missile exchanges, ripples are being felt far beyond the Middle East. For India, the intersection of trade, inflation and financial markets is entering a delicate phase, one that demands swift policy and market responses.

Oil prices surge, inflation feared

The immediate tremor has emerged in global crude markets. Following Israeli airstrikes on Iranian nuclear and military infrastructure, Brent crude shot up by approximately 11 percent—reaching around $77–78 per barrel—before stabilising slightly. That surge reflects a packed risk‑premium over potential disruptions in the Strait of Hormuz—a maritime chokepoint for nearly one‑quarter of global oil supply.

A study by Oxford Economics suggests every $10 rise in barrel prices contributes roughly +0.5 percentage points to global consumer inflation. For India—a nation importing roughly 80‑85 percent of its crude this is significant. Economic Times analysis notes that a $10 increase in oil adds about 0.4 points to Indian CPI and can shave 0.3 points off GDP growth. The RBI recently loosened repo rates by about 100 basis points, but renewed inflationary pressure may prompt a reversal or pause in the easing cycle.

Rupee under pressure, RBI intervenes

A weakening rupee reflects this dynamic. Reports show the USD/INR crossed 86, trading in the 86.00–86.10 band, significantly weaker than the 85.60 prior day. The RBI reportedly sold dollars via state banks to support the rupee, which settled near 86.05. These interventions curb volatility but underscore the stress on foreign exchange reserves, and impact inflation via costlier imports.

Refiners feel the pinch; consumer costs muted—For now

Domestic oil firms have signalled margin compression, noting crude prices have jumped nearly 9 percent since recent hostilities began. However, they downplay immediate supply disruptions and assert refinery throughput will remain stable. This suggests end‑consumer prices, while higher than would be ideal, are likely buffered by government taxes and inventory buffer stocks over the short term.

Still, up‑stream industries—like petrochemicals, LPG, fertilisers, logistics and aviation—face cost pressures. An A2Z Taxcorp analysis warns export logistics might become 40‑50 percent costlier shipping around Africa instead of the Suez/red Sea route.

Trade volumes and export routes disrupted

India’s trade corridors rely on the eastern Mediterranean and Red Sea routes, which have now gained volatility from Middle‑East tensions and Houthi activity in Yemen . Freight rates, after easing earlier this year, have rebounded as vessels divert around the Cape of Good Hope—a journey adding up to 20 days and $500–1,000 per container. This logistical hit disproportionately affects time‑sensitive exports like pharmaceuticals, perishables, and engineering goods.

Equity markets see risk‑off sentiment

Stock markets have responded sharply. Friday’s close saw the Sensex drop nearly 573 points after the weekend escalation. Globally, U.S. equities tumbled—S&P down 1.1 percent, Dow off 1.8 percent, Nasdaq declining 1.3 percent . The weakness is being driven not just by economics, but by a classic “risk off” sentiment as investors flee to the U.S. dollar, yen, Swiss franc and gold.

In India, outflows have followed sensitivity to rupee losses and bond yields. Foreign investors withdrew $15.4 million from equities and $296 million from bonds on June 11. Elevated global yields further discourage carry trades into India and other emerging markets.

Policy tools ready—but caution urged

India’s fiscal and monetary responses will be pivotal in next weeks:

  • RBI will likely continue to defend the rupee while weighing inflation‑growth trade‑offs. Recent actions show willingness to intervene .
  • The government could reduce excise on fuels—currently ₹18–20/litre—to soften sticker‑price inflation. The risk: lower revenues and wider fiscal deficit.
  • Export-sector support may involve faster logistical aid, credit deferments, or tariff rebates—particularly for sectors hit by longer shipping routes and higher container costs.

Looking ahead, variables to monitor include:

  1. Oil stability – Will Saudi or UAE ramp production via OPEC+ to offset Gulf supply risks? Analysts note Riyadh’s recent output increase may provide buffer.
  2. Strait of Hormuz security – Iran has historically avoided closing it outright, mindful of Chinese and Asian buyers; but threats linger.
  3. Wider Red Sea trade threats – Continuing Yemen‑Houthi blockades via the Bab‑al‑Mandab Strait could compound shipping snarls.
  4. Global central bank actions – Rising U.S./EU inflation may prompt rate hikes, shifting capital away from emerging markets.
  5. Escalation risk – Should Tehran retaliate on a larger scale, or strikes hit regional gulf producers, oil could spike to $100–$120/bbl.

Implications for Indian households and businesses

For consumers, sticker shock on petrol and diesel may be delayed, but utility bills, transport fares and food prices (via fertiliser costs) will climb. Gold prices have already touched ₹100,000/10 grams—a reflection of both safe‑haven flows and rupee weakness .

MSMEs in logistics, chemicals, plastic goods, agro‑input sectors may squeeze margins or pass on higher costs. Aviation, in particular, faces double‑whammy: higher jet‑fuel prices and reduced demand due to global economic anxiety .

Yet India isn’t powerless. The country has substantial refining buffer, alternate trade routes, and the RBI’s FX toolkit. If policymakers align swiftly, it may cushion the worst. That said, a prolonged oil shock or a new front in the Middle East could drown these defences.

Here’s Our Final take

India stands at a crossroads, buffeted by distant but powerful shocks. Markets, households, businesses and policy makers must brace for a challenging few months. At stake: inflation stability, exchange‑rate resilience, growth—and the cost of living. In geopolitics, distance offers no immunity.


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Author Profile
Nikhil Singh Sumal
Business & Marketing Editor at 

Nikhil Singh Sumal is a self-taught entrepreneur, investor, and CMO at Growth Jet Media. He brings all-round expertise in branding, startups, and digital growth. At Hindustan Herald, he decodes business trends and marketing strategy with clarity, sharp insight, and a forward-thinking perspective.

Source
Times of IndiaFinancial TimesEconomic TimesOxford EconomicsWorld Bank

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