Iran Israel War: The current tensions between Israel and Iran have the consequences of shock waves across global markets with India’s Stock Exchange no exception to this either. A sharp plunge in the Indian stock market Thursday morning has been driven by fear over Israeli potential military action against Iran’s nuclear and oil facilities in retaliation for Tehran’s missile attacks. It is this scenario that saw a full-scale conflict in the Middle East and new sanctions on Iran, which has been fuelling market anxiety about selling major Indian stocks.
Israel plans, US involvement
The Middle East has never been indifferent geographically, but recent Iran Israel War have pushed it to an all-new level of political tension. After the Tehran missile attack that targeted Israel earlier this week, Tel Aviv began to discuss significant retaliation that may target Iran’s strategic infrastructure. According to reports, Israel may have its guns and missiles fixated on Iran’s nuclear facilities and oil rigs-an act that would leave the region more unstable than ever.
US President Joe Biden responded saying that Israel must retaliate proportionally. Criticizing Iran’s missile attack on Israel, leaders of G7 leaders began to brainstorm to include more sanctions to be imposed on Tehran. At the same time, he warned to not allow a full-scale Israeli attack to hit any critical infrastructure of Iran, because he prompted the State of Tel Aviv to retaliate proportionally. It is against this background that, with all the diplomatic efforts by Biden notwithstanding, the threat of a warlike Israel military action seems greatly probable, and these shake the global economy.
Iran Israel War and Their Impact on Oil Prices
It has always been the case where Middle East conflict-in this case, significant oil producers like Iran-sends oil prices into turbulence. It is estimated that Iran produces nearly one-seventh of the world’s oil, so an attack on Iran‘s oil facilities would disrupt supply chains and send the prices soaring. If oil prices rise, such consequences will not be limited only to oil-importing nations like India.
Being the world’s third-largest oil consumer, India is closely dependent on imports of oil, with most of them coming from the Middle East. As the price of oil advances, this would directly and automatically increase India’s inflation rates and widen trade deficits. Every section-the transport sector, manufacturing sector, and even daily consumption-would be affected by higher fuel costs, which would naturally slow down India’s economic growth.
Indian Stock Market Bloodbath
There is question between all the traders and businessman that Why market is down today? That seems to have had, the Indian stock market today caught the global nervousness over potential conflict and plunged the moment trading opened. Bombay Stock Exchange saw Sensex shed nearly 996 points; it opened at 83,270.37, down 1.18%. Nifty on the National Stock Exchange was down by 269.80 points, opening at 25,527.10, down 1.05%.
Panic selling across major sectors triggered the crash, as investors felt that the long-term aftermath of a probable war in the Middle East might significantly hamper them. Stocks for many large-cap companies tumbled drastically and the market plunged into the red. Major oil supplier company BPCL from India dropped its share price by 2.81%, while shares of Eicher Motors, Tata Motors and Wipro tumbled drastically. This has happened both to mid-cap and small-cap companies when massive losses by Phoenix Ltd and Hindustan Petroleum have been reported.
However, the critical factor that highlights the vulnerability of Indian stocks to global geopolitical events is the sharp market fall. India’s economy is still seeking remedies for disruptions from the COVID-19 pandemic. With the additional external shocks on its economy, the vulnerability increases, and the rising oil prices, disrupting trade, and investor anxiety together puts Indian markets on the brink.
Sectoral Impact of Iran Israel War
Several industries suffer in the wake of the market crash but oil and gas, automotive, and consumer goods stocks take some of the worst hits. Some of the most devastating losses were seen in Tata Motors, BPCL, and Wipro: all three companies took massive hits as investors scurried to protect their portfolios from even more fallout.
Oil and Gas: India is a heavy importer of oil and the shocks to supply chains could easily jeopardize the state of Indian oil companies. Stock prices of major energy players in India like BPCL and Hindustan Petroleum went down as the anxiety about the high price of oil grew.
Automobile: The automobile market is going to get stung since the fuel prices are very high. It is here that Tata Motors and Eicher Motors had felt the ground slipping from under their feet. The share prices of these companies came under pressure. People would naturally buy fewer cars, especially fuel-guzzling cars, with rising fuel costs.
Consumer Goods: Tata Consumer Products and Asian Paints also witnessed a drop in share prices. Consumer goods, as their margins would be squeezed by higher transport and input costs primarily due to higher oil prices, will face a downturn, and the investor reaction will be negative too.
Economic Impact at a Broader Level
Not only does it reflect investor panic, but it also clarifies the deeper risks plaguing the larger economy facing India. A long-term war between Israel and Iran may result in blocking global supply chains, leading to the emergence of higher inflation, and ultimately retard Indian economy growth.
Inflation: Higher oil price levels would increase transport cost, which would then go on to hike other goods and services in the economy, leading to an inflationary rate and, therefore, curtailing consumer purchasing power and demand in key sectors.
Trade Deficit: Since the crude import bill would rise, trade deficit of the country would increase further and demand more pressure on the Indian rupee. It would cost the country to import as currency would degrade.
Inflation Dynamics: If RBI has to check this dynamics of inflation, it may increase interest rates that would raise the cost of borrowing for business organizations and households. This would hamper investments and slow down growth.
The conflict between Israel and Iran has shocked the world markets in ways that haven’t bypassed Indian markets, and the spread of this impact on the Indian market is likely to be deep-rooted because the economy faces severe short-term challenges with the rise in oil prices and negative investor sentiment over the coming months. In this dynamic situation, so long as the conflict in the Middle East remains fluid, the Indian economy needs to prepare itself for the economic blowback from a long-running conflict-the blasting of supply chains, inflationary pressures, and slowing down of India’s quick recovery post-pandemic.
