As Indian markets continued their record-breaking rally, overbought conditions remain a key concern. However, a significant risk that equities, crude, and commodities seem to be overlooking is the escalating conflict in the Middle East. Following an Israeli airstrike that killed Hezbollah leader Hassan Nasrallah, Iran’s supreme leader vowed "more crushing blows" in retaliation. Although markets haven't priced in this threat yet, analysts cautioned that a broader conflict could spark a correction, especially if crude prices surge.
Sugandha Sachdeva, Founder of SS WealthStreet, emphasised that geopolitical tensions in the Middle East present a substantial risk to global oil prices, particularly given the vulnerability of the Strait of Hormuz—a vital passageway that carries nearly one-fifth of the world’s oil supply.
The strait, often at the center of global tensions, is a crucial shipping route responsible for nearly 30 percent of global oil trade. Concerns about potential disruptions have grown after Iran’s threats against Israel.
Sachdeva warned that any disruption in the Strait of Hormuz could severely affect global oil flows and freight movements, exacerbating logistical challenges. For India, which imports around 82 percent of its oil, such disruptions could cause crude prices to jump from current levels of $71 per barrel to as much as $85-87 per barrel.
Jigar Trivedi, Senior Research Analyst for Currencies & Commodities at Reliance Securities, projected Brent crude prices to rise to $78-80 per barrel if Iran, a key OPEC producer, becomes directly involved in the conflict. However, he noted that the potential upside could be capped by OPEC’s planned production increases and Libya's resumption of oil output after a month-long halt.
Since the start of the Hamas-Israel conflict last year, disruptions in the oil market have been limited. Increased production from the US, Canada, and Guyana have added to supply, along with weakening demand from China. However, both experts pointed out that a sharp escalation in the conflict could lead to crude prices surging by over 20 percent.
Ambareesh Baliga, an independent market analyst, warned that such a rise in crude prices would negatively impact Indian market sentiment and could trigger a broader correction. Oil marketing companies (OMCs) would be hit hardest, facing pressure on their marketing margins, although Baliga did not speculate on the extent of the correction.
Geopolitical risks also tend to boost demand for safe-haven assets like gold. Trivedi noted that this year’s rally in gold and silver has been fueled by multiple factors, with rising geopolitical tensions enhancing their appeal.
Trivedi predicted COMEX Gold could reach $3,000 per ounce within four to five months, while MCX Gold could trade between Rs 76,000-78,000 per 10 grams. Sachdeva similarly forecasted gold prices rising to $2,880 per ounce on COMEX and Rs 78,000 per 10 grams on MCX this year.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
