Crude Crosswinds: Sectors on Alert as Oil Prices React to Conflict

Crude oil prices are on the boil again—and it’s sending ripples across Indian markets. Following the recent flare-up between Israel and Iran, Brent crude surged over 13% in a single day to hit $78.50 per barrel—marking its biggest weekly gain since 2022.

While geopolitics may be the trigger, the real story for Indian investors lies in how this price shock is being felt in key sectors. From upstream players like ONGC and Oil India that stand to benefit to pressure points like aviation, tyres, lubricants, and paints—everyone’s feeling the heat.

In this blog, we break down the sector-by-sector impact, track what it means for inflation, the rupee, and trade balances, and analyse how short-term market sentiment is likely to shape up.

The Trigger: Geopolitical Flashpoint Sends Brent Soaring

The volatility began with Israeli airstrikes on Iranian targets, prompting fears of broader conflict in a region that supplies over one-third of the world’s oil. The market reacted immediately: Brent crude, which was languishing around $58.20 per barrel in May, surged nearly 28% by mid-June, trading above $74 as of 19 June.

This spike, amplified by supply disruption fears around the Strait of Hormuz. The Strait of Hormuz is a chokepoint handling 20% of the world’s oil flows. Fears that the Strait of Hormuz would be stopped triggered a sharp selloff in Indian equities. The Nifty 50 fell 0.83% to 24,681, and sentiment across rate-sensitive and oil-dependent sectors turned risk-averse.

Upstream Gainers: ONGC and Oil India Rally

If there’s one pocket that benefits from high crude, it’s upstream oil producers. Brokerages like JM Financial and ICICI Securities reiterated ‘Buy’ ratings on ONGC and Oil India, projecting earnings upgrades with every leg up in crude. With current valuations discounting crude at $65 per barrel, these stocks offer potential re-rating upside.

Additionally, strong production tailwinds, such as 15% growth for ONGC and 25% for Oil India over the next one to three years, could provide fundamental support, even if prices stabilise later.

Downstream Pressure: OMCs, Airlines, Tyres and More

In contrast, downstream businesses such as oil marketing companies (OMCs), airlines, tyre manufacturers, paint companies, and lubricant suppliers are on edge.

• Oil Marketing Companies (OMCs): Companies in this space may face pressure due to weak earnings visibility and current valuation levels, as rising crude prices impact margins.

• Aviation: Jet fuel, which is directly linked to Brent crude, constitutes a significant portion of operational costs for airlines. As prices rise, carriers could see margin stress and reduced pricing flexibility in a competitive market.

• Tyres and Paints: Both sectors rely on crude-based inputs such as synthetic rubber and solvents. A surge in crude prices can lead to higher input costs, which in turn affect margins.

• Lubricants and Adhesives: These also depend heavily on petroleum derivatives. Increased raw material costs could squeeze profitability and influence demand across end-use industries.

Macro Ripple Effect: Currency, Inflation & Rate Cycle

The surge in oil prices is not just a sectoral story; it risks undoing India’s broader macroeconomic progress.

• Current Account Deficit and Inflation Pressures

India imports over 85% of its crude oil, making it highly vulnerable to global price fluctuations. For every $1 increase in crude oil, the country’s current account deficit (CAD) can widen by nearly $3 billion. This puts pressure on both the fiscal balance and inflation outlook. Analysts have noted that if crude prices remain elevated for an extended period, it could challenge current inflation projections for FY26 and may even prompt the use of foreign exchange reserves to manage trade imbalances.

• Rupee Watch: Breaching Key Levels

The rupee, already under pressure, touched 86.20 per USD in intraday trading, with technical indicators suggesting a possible move toward 86.90 unless stability returns. A weak rupee further inflates import bills and contributes to higher domestic price levels.

• RBI’s Dilemma: Liquidity or Inflation?

With geopolitical tensions rising, the Reserve Bank of India (RBI) is expected to review its easing cycle. Markets had been factoring in up to two rate cuts this year. However, a prolonged oil price rally could prompt the central bank to hold off on rate cuts—or even consider tightening liquidity—to contain imported inflation.

Market Sentiment: Valuations, FPI Flows and Nifty Technicals

• Equity Valuations at Crossroads

As of now, 38% of BSE200 stocks are trading above their 5-year average valuations—a sharp rise from just 12% in April. This signals strong market momentum. However, rising crude prices could put pressure on this trend, particularly in the financial and consumer staples sectors. Meanwhile, small and midcap stocks (SMIDs) remain attractive due to better earnings visibility and healthier balance sheets, though the outlook hinges on oil prices stabilising within a few months.

• FPI Flows: Risk of Pullback

After turning positive in May, foreign portfolio investments (FPIs) could take a hit if tensions in the Middle East worsen. Rising geopolitical risks may trigger fresh selling, leading to increased market volatility and pressure on the rupee.

• Nifty Chart Check: Critical Levels to Watch

On the technical front, key support levels are now in focus:

• Immediate support lies at 24,250, aligned with the 50-day moving average.

• Next critical support is at 24,083, which coincides with the 200-day moving average.

• A decisive breach below 23,900 could signal a deeper correction, triggering fresh downside risks.

Given the heightened geopolitical uncertainty, traders may consider keeping positions light—especially over weekends when global developments can spark sharp market reactions.

Conclusion

Crude oil is once again at the centre of global market drama. While the rally has brought upstream players into favour, downstream sectors and macro indicators face mounting pressure. Indian investors need to brace for turbulence, reassess their asset allocation, and closely monitor both price action and policy responses.

As history shows, crude-driven volatility tends to be sharp but short-lived unless supply chains are structurally impaired. For now, the focus stays on Brent’s movement, Hormuz stability, and central bank signals.