US-Israel-Iran Tensions: Crude oil in focus - Which sectors face the biggest impact and why India is at risk? EXPLAINED

Escalating tensions between the US and Iran in West Asia have pushed crude oil prices sharply higher. Brent crude has risen to around $73 per barrel, while WTI is trading near $67. Brokerages and commodity experts believe that if the conflict persists for an extended period, oil prices could climb to $90-100 per barrel.

This would deal a major blow to an oil-import-dependent economy like India. The country imports approximately 85-90 per cent of its crude oil requirements from abroad. As a result, rising oil prices have a direct impact on India’s import bill, inflation, and the rupee.

Most Asian countries rely on imported oil for their energy needs, and higher oil prices could pose a significant challenge to regional economies. Rising import bills, pressure on current account deficits, potential inflation and increasing government subsidy burdens will shape the direction of Asian markets in the coming months. However, government intervention and cautious monetary policies could help limit the impact.

From a stock market perspective, the immediate reaction could be negative, with foreign investors potentially stepping up selling and adding to market volatility. Sectors such as automobiles, aviation, FMCG, and cement may face pressure due to their direct exposure to fuel costs. In contrast, oil-producing companies and defence stocks could attract investor interest, while gold may gain appeal as a safe-haven asset.

International oil prices added to the sector’s woes, hitting a six-month high and likely rising further following US and Israeli military action against Iran over the weekend. Stocks in the sector underperformed their fast-moving consumer goods (FMCG) peers as well as the benchmark indices.

Last month, the average return of top listed paint companies was negative 7.4 per cent, compared with a negative 0.4 per cent return for the Nifty FMCG index, while the Nifty50 delivered flat returns.

Centrum Research noted in a report that paint companies’ commentary shifted from a positive outlook in Q2 to more cautious expectations in Q3. Domestic decorative coatings were impacted by a prolonged monsoon and a shortened festive season, as Diwali fell early in the quarter. Kansai Nerolac reported flat to slightly negative volume growth in this segment, while Asian Paints and Berger Paints recorded high single-digit volume growth.

In addition to pricing pressure, rising crude oil prices will also impact paint companies’ margins. Products such as titanium dioxide and binders or resins derived from crude oil account for over 60 per cent of raw material costs, and a sudden increase in oil prices could force companies to raise prices or absorb margin losses.

If transportation costs increase, prices of essential commodities could also rise. The government’s fiscal deficit may be affected as well. In India, petrol and diesel prices are not directly linked to global markets. State-owned oil marketing companies (OMCs) absorb part of the impact, while the government compensates them for the remaining losses.

If oil prices rise by 10 per cent, India’s GDP growth could slow by around 0.1 per cent, while inflation may increase by about 0.1 per cent, indicating a relatively limited impact.

According to economists, every $10 per barrel increase could increase India's import bill by Rs 10,000-15,000 crore annually.

On average, headline inflation may rise by around 0.2 per cent for every 10 per cent increase in oil prices. However, in many Asian countries, governments regulate petrol and diesel prices, which could limit the inflationary impact. Countries such as India and Thailand use subsidies or price-control mechanisms, meaning inflation in these economies is unlikely to rise sharply or suddenly.

On average, headline inflation could rise by about 0.2 per cent for every 10 per cent increase in oil prices. However, in many Asian countries, petrol and diesel prices are regulated by governments, which can limit the inflationary impact. Countries such as India and Thailand use subsidies or price-control mechanisms, meaning inflation in these economies is unlikely to spike suddenly.

Avoid panic-driven trading, wait for markets to stabilise, and consider reducing exposure to high-risk stocks. It is also important to closely monitor oil prices, dollar-rupee movements, and FII flows.