Market cautious as US-Iran tensions push oil prices higher and threaten Indian imports

Indian equities are set for a cautious start amid escalating US-Iran tensions and rising oil prices, with market sentiment split over risk appetite and long-term disruption in the Strait of Hormuz.

Indian equities were set for a cautious start on Monday even as much of Asia moved higher, with GIFT Nifty down 48.60 points at 23,999.50 while crude held near recent highs after another round of US-Iran attacks around the Strait of Hormuz. The uneasy split in sentiment was striking: traders were willing to buy technology-led risk in Seoul and Tokyo after Friday’s US market gains and a firm American jobs report, but they were also being forced to price in a fresh energy shock for one of the world’s biggest oil importers. (ndtvprofit.com)

What makes the latest flare-up especially sensitive for markets is the location. The Washington Post reported that about a fifth of the world’s oil supply moved through the strait before the war widened earlier this year, and that traffic there has slowed sharply since fighting resumed after a failed June ceasefire. For India, that matters well beyond fuel companies: sustained disruption in Hormuz threatens imported inflation, transport costs and company margins just as investors are also wrestling with higher global bond yields. (washingtonpost.com)

The immediate trigger was a weekend exchange in which US Central Command said it had attacked three Iranian oil tankers after what Washington described as an attempted missile strike on two Navy warships. Tehran then said it would create a new exclusion zone outside Hormuz. Reuters said Iran’s Islamic Revolutionary Guard Corps had launched ballistic missiles at the US vessels, while Bloomberg reported that Iran also claimed to have targeted three tankers using an unauthorised route and several US-linked vessels. In a further twist after those reports, the Associated Press said the US military denied an Iranian claim that it had struck an unmanned American vessel, calling that allegation “a total lie”. (in.marketscreener.com)

Away from the Gulf, the broader market backdrop was not uniformly defensive. Reuters reported that investors took last week’s strong US payrolls data as evidence that global growth remained intact, helping Japan’s Nikkei rebound 2% and South Korea rise 3%, while MSCI’s Asia-Pacific index outside Japan gained 0.9%. Bloomberg’s Asia market wrap added that Nikkei 225 futures were up 1.9% and the yen strengthened to 155.82 per dollar. But that same payrolls surprise also raised the stakes for Friday’s US inflation reading: Reuters said markets were pricing a 58% chance of a Federal Reserve rate rise on 16 September and a 70% chance of a move in October. (in.marketscreener.com)

Oil traders are plainly assuming this is not a one-day scare. In a Bloomberg commodities report carried by Moneyweb, Bart Melek of TD Securities said: “We continue to expect crude prices to move higher, as there are no signs that normal transit through the Strait of Hormuz will resume in the near term.” The same report said several current and former US and Iranian officials expected the conflict to drag on for months, and noted that refined products, particularly diesel, had risen even faster than crude because supplies were tightening. It also cited a UK Maritime Trade Operations report that a tanker near Oman had been hit by three unidentified projectiles while leaving Hormuz. (moneyweb.co.za)

The political message from Washington has done little to calm nerves. Speaking to ABC’s “This Week”, Energy Secretary Chris Wright said: “There may not be a nuclear agreement. It may be simply destroying their capabilities to do it. An agreement may await a next administration in Iran. We simply don’t know that.” ABC also noted that President Donald Trump said last week he “could not care less” whether Iran reached a deal. Wright said the US bombing campaign had degraded Iran’s capacity to build and deliver a nuclear weapon, underscoring how far the administration’s rhetoric has shifted from diplomacy towards coercion. (www-cdn.abcnews.com)

Other interviews on Sunday suggested Washington is trying to hold together both military pressure and a nominal diplomatic opening. The Guardian reported that Wright later told CBS the US was “always open for a deal”, even as he described the military’s main role in the Gulf as choking off Iranian energy exports. The Washington Post said the June ceasefire and memorandum of understanding that were meant to open the way to a broader settlement had quickly unravelled. On CNN, according to the Guardian, Wright would not say tankers could pass safely without US naval support and conceded shipping was still not back to “pre-conflict levels”, while the Post said he argued the Navy was there to help guide merchant vessels through the passage. (theguardian.com)

For Indian investors, that leaves Monday’s opening defined by two competing forces: resilient appetite for risk assets abroad, and a growing sense that Middle East shipping disruptions could last longer than traders had hoped. If crude stays elevated, the market will have to weigh that against looming US inflation data, the prospect of a Fed move this month, and an ECB decision later this week. That is why a stronger Asia tape was not enough to lift GIFT Nifty before the bell: for now, Hormuz matters more than momentum. (ndtvprofit.com)