Israel-Iran Conflict and Why it can impact Indian Stock market

We often think global conflicts are far away. But sometimes, what happens thousands of miles away hits closer to home, like right at our petrol pumps or grocery bills. The ongoing tensions between Israel and Iran are one such case. And the biggest worry? Crude oil prices.

Oil Prices Are Rising, Here's Why It Matters to You

In just five days, Brent crude rose 7% to over $70 per barrel. For a country like India, which imports 89% of its oil, even small increases can raise costs across the economy.

In FY25, India spent $137 billion on crude oil imports, about 15% of the total import bill. That means when oil becomes expensive globally, everything from fuel to food to transport gets pricier here. It’s like an invisible tax on both people and businesses.

The Real Cost of a $10 Oil Price Hike

If crude oil rises by $10, historically, it has impacted the economy in two ways. GDP growth tends to slow by around 0.3 to 0.4%, while inflation (CPI) increases by about 0.4%. This rise in oil prices doesn’t just show up in macro data; it directly affects households, businesses, and the broader economy in several ways.

• For households: Fuel and transport get costlier, grocery prices go up, and EMIs stay high. There’s less money left for spending.
• For businesses: Transport and raw material costs rise, squeezing margins. Some may pass the cost to customers, others may take a hit on profits.
• Currency Impact: Higher oil prices also mean more dollars spent on imports. That puts pressure on the rupee, making imports even more expensive. It can also increase India’s current account deficit.

Sectors That May See a Cost Impact

• Airlines: Fuel is a major cost. When oil prices rise, jet fuel gets more expensive. That puts pressure on profits. Airlines either absorb the cost or raise ticket prices, which can reduce demand. For example, InterGlobe Aviation spent 31.1% of its revenue on fuel in FY25.
• Logistics & FMCG: Moving goods costs more when fuel prices go up. Delivery firms face higher diesel bills; consumer brands and e-commerce see steeper transport costs. Margins shrink, or companies may raise prices, which can slow sales.
• Paint Companies: Paint makers use binders, solvents, and additives from crude oil. When oil prices rise, their input costs go up.
• Auto Companies: Autos and oil are linked. When oil costs rise, running petrol/diesel cars gets pricier, so buyers may delay purchases or pick smaller models. Sales fall and margins shrink. Automakers then adjust prices, offer finance deals, and cut costs to keep cars affordable. Higher oil prices lower demand and force change.

Sectors That Could Do Well

• Oil Refiners: When crude prices swing, the gap between buying oil and selling fuel can widen. That boosts their Oil refiners' margins, so profits can rise. 
• Defence Companies: In uncertain times, governments often spend more on defence. That means more orders for defence companies. Investors also see these names as safer when markets are facing global tensions.
• Gold & Bonds: When global risk goes up, many investors shift money from stocks into gold or bonds. That pushes up gold prices and bond demand, so holders of these assets can benefit.

As an Investor, What Should You Watch?

Now let’s get to the part that matters most: what you can track,

1. Brent Above $80: Brent above $80 raises import costs and fuels inflation worries for India. FIIs can turn cautious and may shift money from India, which can create a sell-off in the market.
2. Rupee weakness vs dollar: Since oil is bought in dollars, a weaker rupee makes it more expensive for India. Watch USD/INR moves; if the rupee is slipping, it adds to inflation risks.
3. RBI’s Stance: Rising inflation from higher oil can delay rate cuts or even lead to tighter policy. That means EMIs stay high, and credit growth slows. Track RBI statements and policy meetings to gauge if rates might stay higher for longer.

In short: higher oil → higher inflation → higher interest rates → lower growth.

Stocks to watch

India’s Oil Dependence: A Structural Risk

High Import Dependency: India is the world’s third-largest oil consumer, yet it produces only about 11% of its own crude. That means nearly nine out of every ten barrels come from overseas markets. Such heavy reliance makes our economy sensitive to changes in global oil prices and supply.

Oil’s Share of the Import Bill: In FY 2025, India spent $137 billion on crude oil imports out of a total import bill of $915.2 billion. Oil alone accounted for roughly 15% of everything we buy from abroad. When oil prices rise, that portion of our import bill expands, leaving less room in the budget for areas like infrastructure, defense, or social programs.

Demand-Supply Gap: India is the world’s third-largest oil consumer, after the United States and China. But in terms of production, we rank around 20th globally. This large mismatch between our demand and domestic output highlights how dependent we are on imported crude to meet our needs. For context, India produced 29 MMT of crude oil and imported 232 MMT in FY25.

Final Thoughts

Rising oil prices driven by the Israel-Iran conflict can hit India directly. With 89% oil dependence, even small price hikes raise inflation, hurt growth, and weaken the rupee. Sectors like airlines, FMCG, and autos may see pressure, while FIIs can turn cautious. Higher oil usually means higher inflation, tighter rates, and slower growth. As an investor, watch Brent crude, the rupee, and the RBI policy.