The Iran-Israel war could push oil prices above $100 per barrel.May cause panic selling and stock market volatility

Indian markets are likely to see increased volatility next week as geopolitical conflicts intensify in the Middle East. Iran launched an attack on Israel on April 13, escalating long-standing tensions between the two countries and raising the risk of regional war.

US President Joe Biden reiterated that the US will support and defend Israel in the event of such an attack. As a result, markets will also closely monitor developments in oil prices, which are generally influenced by geopolitical events.

Oil prices rose 1% on April 12 on what could be the biggest escalation of Middle East tensions since the start of the Israel-Hamas war in October 2023. The rise was driven by concerns about potential supply disruptions. Brent crude settled at $90.45 per barrel, while US West Texas Intermediate crude posted weekly losses due to the International Energy Agency’s (IEA) weak forecast for global oil demand growth and concerns about a slowdown in US interest rate cuts. Despite this, the price rose to $85.66.

Also read | Middle East in turmoil: Iran attacks Israel with drones and missiles in unprecedented retaliatory mission

The peak of price hikes

The possibility of a full-scale war between Israel and Iran has pushed oil prices to near six-month highs. This comes after OPEC extended its voluntary production cut of 2.2 million barrels per day to maintain market stability. Analysts predict that Brent crude oil prices could rise above $100 a barrel if Iran attacks and the war escalates.

Bob McNally, president of Rapidan Energy and a former senior energy official, said that if this escalation leads to disruption of the Strait of Hormuz, a key trade route for oil, oil prices could reach $120 or $130 per barrel. He said there was a possibility of a sharp rise in prices. CNBC. Since India is a net importer of oil, the spike in prices directly increases the country’s fiscal deficit and inflation.

The rise in crude oil prices has an impact on India’s CAD (current account deficit), because when the total amount of goods and services a country imports exceeds the total amount of goods and services exported, the CAD (current account deficit) increases. It is. For every $10 increase in oil prices, the Canadian dollar could expand by 40 to 50 basis points, analysts said.

A rise in the Canadian dollar could affect investor confidence and lead to a weaker domestic currency, which could result in higher prices for imported goods, leading to higher inflation and a reduction in people’s purchasing power. there is.

Also read | Oil prices gradually rise as tensions in the Middle East intensify

Next week will be critical for markets, as a significant escalation in tensions could lead to panic selling and increased volatility in global stock markets. Trends in US Treasury yields and the dollar index will be important factors influencing market sentiment.

“The market will also closely monitor the developments in crude oil prices, which are influenced by geopolitical events,” said Ajit Mishra, senior vice president, technical research, Religare Broking Ltd.

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