Barely two months into 2026, the world has been jolted by yet another geopolitical rupture. With their operations ‘Epic Fury’ and ‘Roaring Lion,’ the United States and Israel launched coordinated strikes on Iran, abruptly shattering what had only recently appeared to be a promising arc of diplomatic progress. For months, reports suggested that negotiations between Washington and Tehran on curbing Iran’s nuclear program were advancing steadily. Some accounts even hinted that a framework acceptable to the United States had been reached. In hindsight, those diplomatic overtures now seem like a veil, an elaborate smokescreen that bought time for US‑led forces to manoeuvre into position even as the broader West Asia braced for a confrontation it hoped to avoid.
What the region did not foresee was the scale and reach of the fallout. Iran’s strategic doctrine treats all US military installations in the region as legitimate targets. Over the past forty‑eight hours, bombs and interceptor debris have rained down on Manama, Dubai, Abu Dhabi, Doha, and Kuwait City. That includes major air bases across the Gulf and the headquarters of the US Navy’s Fifth Fleet in Bahrain, which oversees the Gulf, the Red Sea, and parts of the Indian Ocean. Iran has confirmed that Supreme Leader Ayatollah Ali Khamenei was killed in his office during the initial strikes. A succession plan appears to be underway, but retaliation is sure to continue, at least for the short term. Fears over maritime transit through the Strait of Hormuz have surged, amplifying global anxiety.
For India, the shockwaves are immediate. Dalal Street opened the week on a sharply weaker footing, mirroring global risk aversion. On March 2, the Sensex plunged nearly 1,400 points to hover around 79,900, while the Nifty slipped to roughly 24,750, a decline of about 1.7 per cent. Market breadth was extremely weak, with heavy selling across sectors. Mid‑caps and small‑caps, often the first casualties of global risk‑off sentiment, were hit particularly hard. Foreign investors accelerated their exit, pulling capital from emerging markets as geopolitical uncertainty spiked. The India Volatility Index surged more than 15 per cent, signalling the market’s fear of sharper swings ahead.
Vaishali Basu Sharma
Escalating tensions between Israel and Iran had pushed global investors into safe‑haven assets, unleashing a broad equity selloff. But for India, the deeper vulnerability lies in crude oil. Iran’s geographic position gives it leverage over the Strait of Hormuz, the world’s most critical oil artery. More than 20 per cent of global crude and a massive share of liquefied natural gas (LNG) pass through this narrow waterway. For India, the dependence is acute: a dominant portion of its crude imports and nearly 85 percent of its LPG supply transit Hormuz. Any prolonged disruption is more than an inconvenience; it is a strategic threat.
Since Saturday, oil, gas, and other shipments through the strait have effectively halted after Iran warned shipowners that the area was closed for navigation. Oil prices reacted instantly. Brent crude surged over 7 per cent to cross $82 per barrel, its highest level in months. Even before the strikes, prices had climbed to $73 on February 27, the highest since July, as markets priced in the risk of a wider West Asian conflict. Now, with flows disrupted and uncertainty deepening, the upward pressure is intensifying.
For India, this is where the indirect exposure becomes far more consequential than the direct one. Trade with Iran is limited today, but India’s economic stability is tightly bound to energy prices. The country’s commercial and strategic crude reserves can cover only about two weeks of consumption. A sustained spike in oil prices threatens to erode the hard‑won stability in inflation and growth. If crude remains elevated near $80 or climbs further, it may not be catastrophic, but it will certainly strain the comfort zone policymakers have enjoyed in recent months. Higher oil prices feed into inflation, widen the current account deficit, weaken the rupee, and tighten financial conditions. Already, the rupee has depreciated against the US dollar, and bond yields have risen as investors demand higher compensation for risk.
Qatar, one of the world’s largest LNG exporters, relies heavily on the Strait of Hormuz. With LNG shipments now effectively halted, Asian buyers, including India, which sources a significant portion of its LNG from Qatar are scrambling to secure alternative cargoes. Bloomberg reported that in response to the escalating crisis, India is considering a return to purchasing Russian crude stored in floating storage across Asia. State‑owned refiners and government officials met over the weekend to discuss emergency supply strategies. With West Asian flows disrupted, Russian barrels may once again become a critical fallback.
Beyond the immediate energy shock, the West Asian crisis underscores a broader, more structural challenge: the rising geopolitical and geoeconomic risk premium in global capital flows. The Iran episode is not an isolated event, it is part of a pattern. Each new conflict adds another layer of uncertainty, another reason for investors to hesitate, another shock to global trade routes. Over the past few years, a series of conflicts, trade disputes, and protectionist shifts have eroded investor confidence. Foreign direct investment has slowed not just in India but globally. Tariff uncertainty, supply‑chain realignments, and geopolitical fragmentation have collectively raised the cost of capital and reduced the appetite for long‑term investment.
Nearly 90 lakh Indian expatriates live and work across West Asia, and India’s economic linkages through remittances, energy imports, trade, and aviation run deep. The uncertainty surrounding the unfolding conflict makes long‑term outcomes impossible to predict, but the immediate reality is that India is exposed, not through direct confrontation, but through the vital arteries of global energy and finance that this crisis has abruptly constricted.
