Expert View: Global Tensions, Oil, and the Markets

Let’s face it. Global headlines can make anyone nervous. A war flares up, oil prices spike, a pandemic breaks out, or a big election shakes things up, and suddenly panic takes over your investments. These uncertainties affect stock markets as investors rush to safe havens.

But history shows something important: not all sectors respond the same way to geopolitical shocks.

Energy and defence-linked industries often see support during such periods, while fuel-intensive sectors such as aviation or logistics can face pressure as costs rise.

Take the ongoing West Asia tensions between Iran and Israel, for example.

Since the escalation earlier this week:

1. The Strait of Hormuz, one of the world’s most critical oil transit routes, has faced disruptions.
2. Brent crude prices have risen roughly 10–14% due to that, creating pressure on oil companies.
3. The Indian Rupee has weakened past ₹91 per US dollar. 

These moves illustrate how geopolitical shocks can quickly travel through energy markets, currencies, and equities.

Let’s understand market sentiment and how investment experts at smallcase (known as smallcase managers) are reading the global scenario. 

How Have Indian Markets Reacted to Wars?

Geopolitical shocks typically affect markets first through oil and currency.

When Russia invaded Ukraine in February 2022, Indian shares fell over 3% while the Rupee weakened sharply as oil prices surged.

But markets do not always remain weak during conflicts. Sometimes investors begin pricing in a faster resolution or economic resilience.

India-specific conflicts provide another reference point. An Economic Times analysis of historical Indo-Pakistan tensions shows that during the 1999 Kargil conflict, the Nifty saw a maximum drawdown of around –0.8%, followed by a 32% rally over three months and about 37% over six months once uncertainty eased.

Markets on Key Events (2016-2026)

Source: Market data, news reports

smallcase manager and founder of Divitiae’s Investments, Agrim Verma, summarises this pattern:

“Historically, geopolitical crises tend to create short-term volatility but rarely derail long-term market trajectories. Indian equities have historically recovered and even rallied after global conflicts once uncertainty subsides. At this stage, we view the Iran conflict primarily as a temporary geopolitical risk premium rather than a structural threat to India’s growth story”.

The Macro Transmission: Oil, Inflation and the Rupee

For India, the primary channel through which geopolitical conflicts affect the economy is energy prices.

Higher crude oil prices increase the country’s import bill and raise demand for Dollars, which can put pressure on the Rupee. Energy and freight costs can also feed into broader inflation expectations.

ICRA has quantified this sensitivity. The rating agency estimated that every $10-per-barrel increase in crude oil prices can raise India’s annual oil import bill by about $13–14 billion and widen the current account deficit by roughly 0.3% of GDP.

The Petroleum Planning and Analysis Cell (PPAC) provides daily data on the Indian crude basket. For context, it stood at $80.16 per barrel on 2 March 2026.

India does have buffers. The government has assured that India’s petroleum reserves can cover around 74 days of consumption during global disruptions.

Yet the country remains structurally exposed to energy supply routes.

Karthick Jonagadla of Quantace Research highlights the role of the Strait of Hormuz:

“Roughly 40–50% of India’s crude imports, around 85% of LPG, and about 55% of LNG typically transit through Hormuz. Even a partial disruption can quickly become an inflation and rupee story,” adding, “Every crude price increase widens the current account deficit by about 0.3% of GDP—enough to keep RBI policy cautious.”

Sector Impacts of War: What’s smallcase Managers are Watching

Oil-driven shocks often create dispersion across industries. A simple way to think about it is: does the sector sell oil-linked output or buy fuel-linked inputs? 

Take a look at how smallcase managers are reading the current sectoral changes:

KamayaKya’s founder, adds another dimension related to market infrastructure:

“With domestic growth intact, sectors with high India-facing exposure stand to benefit the most — we remain bullish on Banking & NBFCs, Commercial Vehicles, Consumption and the Water theme as core domestic compounders.”

GoalFi’s Robin Arya cautions, “We frame the Iran conflict for India mainly through oil and currency channels. That makes the economy sensitive to any disruption in the region.”

Narender Singh Singhmar of Growth Investing has a different point of view that most investors tend to miss. According to him, “The market is reacting to crude. It should be reacting to cash flows. This is not about panic, it’s about repricing.” 

In simple terms, managers have focused on five broad themes amid the global tensions: energy producers, defence manufacturing, gold-linked assets, oil-sensitive consumption sectors, and market infrastructure linked to hedging activity.

Bottom line: Investing Amid Geopolitical Noise

Short-term market moves are often driven by information shocks, sudden developments that investors must quickly digest and react to.

Long-term outcomes, however, tend to be shaped by deeper forces: earnings growth, productivity gains, and economic policy.

As KamayaKya’s founder notes, “India today has nothing structurally broken. Macros remain stable, domestic consumption is resilient, and recent corrections have only made valuations more attractive.”

One way to navigate such uncertainty is through a basket-based approach to investing, where portfolios are built around themes, sectors, or risk factors rather than individual stocks. This allows investors to evaluate exposure across different drivers such as energy prices, domestic demand, or global trade.

Diversification cannot eliminate volatility. But spreading exposure across sectors and themes can reduce the risk that a single shock disrupts the entire portfolio.

If you want to explore themes and strategies linked to sectors affected by rising global tensions, you can browse our curated collection on how to navigate volatility.

TL;DR: Over time, the India growth story takes back the lead.

Disclaimer: This analysis is for educational purposes and does not constitute investment advice. Market conditions can change, and past performance is not indicative of future results. Investors should conduct their own research and/or consult a certified financial advisor before making investment decisions.