Oil is crude once again! Is $95 the new normal and what it means for Indian investors?

Just when investors thought the worst of the oil shock was behind them, crude has staged another sharp comeback.

Hopes that the interim peace agreement between the United States and Iran would cool prices at least for the foreseeable future, have quickly faded, with Brent crude once again hovering around the $87-88 per barrel mark as geopolitical tensions flare up in the Middle East.

Last month had offered much-needed relief for oil-importing nations such as India. Crude prices had plunged 42% from their April peak of $126 per barrel, reached at the height of the conflict, as tanker traffic through the Strait of Hormuz gradually returned to pre-war levels following the interim peace deal.


That relief, however, proved fleeting. Brent has already rebounded nearly 20% since last week after the United States and Iran resumed military strikes, while U.S. President Donald Trump declared that the deal with Iran was "over."

Oil’s new normal can’t be pre-war

"At the current point there are no signs of a ceasefire again. But in case there is a ceasefire immediately imposed, we don't expect Brent oil prices to fall beyond $70 per barrel. It is likely to remain the lower support for the near term," Pranav Mer, Senior Vice President Currency, Commodity at JM Financial, told ETMarkets.

Also read:Tehran threatens to halt all Mideast energy exports after US reimposes its blockade on Iran

"The supply through the Strait of Hormuz is unlikely to get normal any time soon, with Iran claiming its total control over the same, but with the U.S. now claiming control of the passage. The war is likely to escalate further, making the safe movement of ships and vessels difficult. If we look at the price outlook for the near term, we see Brent trading between $70 and $95," he said.

Mer added that oil prices still have room to move higher. He expects Brent to climb towards $92-$95 per barrel, although the pace of the rally will depend on the intensity of the conflict. Any further escalation in hostilities could quickly push prices above $100 per barrel in the near term.

Anindya Bannerjee, Head of Commodity Research at Kotak Securities, said oil has once again started pricing in geopolitical risk.

"With Iran formally closing the Strait of Hormuz to all vessel traffic and both sides exchanging strikes even as talks continue, oil has swung back to pricing risk, and Brent has recovered from the low-$70s to near $79-85." Over the next one to three months, he expects Brent to trade in a broad and volatile $70-$90 range, with a base case of $75-$85. Conversely, any strike on major Gulf export infrastructure could force a retest of $95-100 and beyond," Banerjee said.

Despite the recent flare-up, Banerjee remains optimistic over the longer term. "The direction of our outlook is unchanged; the path and the timeline have shifted. We still expect oil to cool as we move into 2027, for three reasons: supply outside the conflict zone is expanding, with OPEC+ raising production targets, the UAE at record output and non-OPEC barrels responding to price; demand is softening at the margin, with high pump prices squeezing a K-shaped American consumer and the post-World Cup slowdown ahead; and global inventories, as the IEA notes, are positioned to rebuild once flows normalise. The rebuild is delayed, not cancelled."

Read more: Trump resumes Iran port blockade and threatens strikes on energy targets

The bigger risk, however, according to Aamir Makda of Choice Institutional Equities, is that higher crude prices could force central banks to keep interest rates elevated for longer, further weighing on demand.

Maulik Patel, Head of Research at Equirus Securities, said Gulf shipping flows had recovered only gradually following the earlier interim agreement and remained vulnerable to fresh attacks. He added that the real shortage is increasingly in refined petroleum products rather than crude itself.

What does this mean for Indian stock market?

India's external balance and government finances could be hit if oil prices stay high for an extended period, economists have said, as the Iran war pushes up oil import costs and the subsidies needed to keep key commodities affordable.

Oil demand is largely inelastic, meaning consumption does not decline significantly even when prices rise. However, the economic impact varies widely across countries.

Macro stress - With the Strait of Hormuz now in the crosshairs of a widening war, crude oil has once again become the single most important variable for India's macro-financial stability as well as stock market investors in the near term.

Macro stakes are high for India as the Middle East takes 17% of domestic exports, supplies 55% of its crude oil, and accounts for 38% of worker remittances. "A prolonged conflict, alongside a large jump in energy prices, would be a major macro negative," Jefferies said, while also noting that recent regional conflicts have been temporary, and that a dip could be a buying opportunity.

Domestic brokerage JM Financial says that every $1 increase in crude prices raises India's annual import bill by roughly $2 billion. Prolonged geopolitical tensions could also increase logistics and marine insurance costs, disrupt Gulf shipping routes and widen pressure on India's trade balance.

Nearly 20% of global oil flows pass through the Strait of Hormuz, while more than 40% of India's crude imports transit through the waterway, highlighting the country's significant exposure.

An average price of $100 a barrel would widen ⁠the current account ‌deficit to 1.9%-2.2% of GDP for the 2026/27 financial year, from a projected 0.7%-0.8% of GDP, rating agency ICRA said in a note. The Indian economy is expected to grow at more than 7% in the next financial year, on top of growth of 7.6% forecast for the current year.

If oil prices hold near $100 per barrel through the next financial year, GDP growth could fall to 6.6% and inflation could rise to 4.1%, the research department at the State Bank of India said back in March. If oil prices average $130 per barrel, GDP growth could plummet to 6%, it said.

Pressure on rupee - A sustained rise in crude oil prices is typically negative for the Indian rupee because India imports nearly 90% of its oil requirements. Higher crude prices increase the country's import bill, raising demand for U.S. dollars to pay for oil purchases. This widens the current account deficit and puts downward pressure on the rupee.

Costlier oil also fuels imported inflation, making it harder for the Reserve Bank of India to ease interest rates. While the RBI may intervene using its foreign exchange reserves to curb excessive volatility, a prolonged period of elevated crude prices is likely to keep the rupee under depreciation pressure.

For equity markets, a spike would likely trigger a broad risk-off reaction. Higher energy costs increase input expenses for companies, squeeze corporate margins and weaken consumer spending.

Historically, sectors such as aviation, paints, chemicals and logistics have come under the most pressure during periods of sharply rising oil prices, while upstream oil producers and energy companies have generally benefited from higher crude prices.

Short-term spikes driven by geopolitical events often reverse once supply routes reopen. However, a prolonged disruption to Gulf exports could keep inflation elevated, weaken economic growth and lead to a more volatile environment for global as well as Indian financial markets.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)