Jefferies calls Israel-Iran conflict a buying opportunity; warns Hormuz, crude shock risks for India

Amid the sharp selloff triggered by US and Israeli missile strikes on Iran, international brokerage firm Jefferies has struck a cautiously optimistic note, suggesting the Middle East flare-up could prove short-lived. Drawing parallels with recent regional conflicts that faded quickly, the brokerage sees a potential buying opportunity emerging from the panic.

However, it cautioned that any prolonged escalation, especially if accompanied by a sharp spike in energy prices, would pose a significant macroeconomic risk.

India's economic links with the Middle East are strong, with the region taking 17% of India's exports and providing 55% of its crude oil and 38% of worker remittances.


India’s direct exposure to Iran remains limited; however, the broader risk from the ongoing conflict stems from a potential freeze in trade and travel with the Middle East. The region is a key trading partner, accounting for nearly a fifth of India’s goods exports, comparable to the US and the EU, while also supplying the majority of India’s crude oil requirements. In addition, the Middle East hosts a large Indian diaspora, with worker remittances amounting to $45 billion in FY24, or nearly two-fifths of India’s total remittance inflows.

The duration of any closure of the Strait of Hormuz will be critical, Jefferies said in a report dated March 1. At present, global shipping lines are avoiding the Strait following US advisories. The base case is that the blockade will be brief, given its potential impact on global energy prices. The Strait accounts for around 20% of global crude oil and LNG consumption.

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Kuwait, Qatar and Bahrain rely solely on the Strait for their exports, while 60% of Saudi crude exports and the majority of Iran’s exports pass through it. Initial estimates suggest that 10 to 13 mbpd of crude exports, roughly 10% to 13% of global demand, could be affected, along with around 15% of global LNG supplies. India receives 2.5 to 2.7 mbpd, or 50% to 60% of its crude, and nearly 50% of its LNG imports through the Strait. Crude and LNG prices are expected to jump sharply in the near term, although the blockade is anticipated to be short-lived, with shipping activity resuming soon. Elevated LNG prices could raise feedstock costs for city gas distribution companies such as IGL, MGL and Gujarat Gas and impact volumes for GAIL.

From a macro perspective, the extent and duration of the crude spike following the Hormuz disruption will be crucial. A prolonged closure and sustained high crude prices would be negative. Every $10 per barrel increase in crude has an estimated 35 basis point impact on the current account deficit. Retail auto fuel prices in India have remained unchanged for around 2.5 years, with fluctuating marketing margins of oil marketing companies absorbing price shocks. If crude sustains above $80 per barrel, retail price hikes and/or a reduction in fuel excise duties may follow. A $10 per barrel increase could have a 20 to 25 basis point impact on CPI inflation if passed on to consumers, or on the fiscal deficit if the government opts to cut taxes.

Disruption to travel and tourism is a key concern. Middle East tensions and airspace restrictions could directly dampen international travel demand, affecting IndiGo, where the Middle East accounts for 35% to 40% of its international capacity mix and 10% to 12% of total capacity, as well as airport operators such as GMR and online travel agencies. Hotels may witness a decline in foreign tourist arrivals. The spike in crude would further strain IndiGo’s margins through higher aviation turbine fuel costs.

On the other hand, defence could emerge as a beneficiary. Defence spending is projected to rise 18% year-on-year in FY26E, compared with a 10-year CAGR of 6% to 8%, with similar growth budgeted for FY27. Ongoing global geopolitical tensions could support the continuation of double-digit growth in the medium term. India’s defence capex spending at 0.6% of GDP remains well below the previous peak of 1.0%, while the focus on domestic manufacturing is expected to persist. The outlook remains positive on BEL, Data Patterns and HAL.

Several companies also have significant exposure to the Middle East. L&T derives over 25% of consolidated revenue and more than 40% of its EPC order book from the region, while Newgen generates around 30% of its revenues there. Other companies with meaningful 5% to 10% exposure include consumer names such as Dabur and Titan, select pharmaceutical firms including Ajanta Pharma, Biocon and Cipla, major hospital chains that earn 8% to 10% of revenue from international patients, and other players such as PB Fintech and Voltas.

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