Oil supply crunch to keep global markets under pressure: Arvind Sanger

In a market environment dominated by geopolitical tensions and surging energy prices, the traditional playbook for investors is being turned on its head. The ongoing West Asia conflict has triggered sharp movements across asset classes, with even safe-haven assets like gold failing to provide comfort. Instead, liquidity and cash are emerging as the preferred refuge in the face of mounting uncertainty.

The recent behaviour of gold has been particularly striking, with heavy liquidation suggesting that investors are prioritising cash over conventional hedges. Arvind Sanger from Geosphere Capital acknowledged this shift, noting that gold has struggled in the near term. “Gold has certainly not been a safe haven. In fact, gold is down another almost 2.5% to 4,300–4,400. So, in the short term, the dollar is benefiting, and gold is seen as an anti-dollar trade. So, gold is selling off.” Rising US Treasury yields and tighter liquidity conditions have further weakened gold, reinforcing the current risk-off sentiment.

However, the real concern for global markets lies not in gold but in oil. Sanger underscored that energy prices are now the central variable driving market direction. “The real challenge here is oil, and if this war lasts a few weeks, which we think is quite likely, then oil is headed higher.” With Middle Eastern crude benchmarks already trading significantly above Brent, the risk is that global oil prices continue to grind higher. More critically, he pointed to a structural supply imbalance, stating, “We do not have enough oil. That is the bottom line. With the Strait of Hormuz shutdown, the world is short of oil.” This shortage is not just a price issue but a macroeconomic risk with far-reaching implications.


The consequences of rising energy prices are beginning to filter into the broader economy through second-order effects. As Sanger explained, “If you are spending more on filling up your car with gasoline or you are starting to see other inflationary items come in, then the second-order effect starts to come in terms of consumption of other discretionary goods.” Higher fuel and input costs are likely to compress household spending power and dampen demand for non-essential goods. At the same time, industrial signals are turning weaker, with copper prices declining sharply. “Copper is often called Doctor Copper. Copper has sold off quite sharply, and maybe that is indicative of the fact that an economic slowdown is coming.”

Despite the current weakness, the long-term case for gold remains intact. Sanger believes that heightened uncertainty will eventually restore its appeal. “In an uncertain world, central bankers and others are going to look at gold as a long-term safe haven.” Drawing parallels with the stagflationary period of the 1970s, he suggested that gold could perform well if high inflation persists alongside slowing growth. “Gold may have just gone too far ahead for a while, and there is a little bit of profit-taking, but gold is clearly one of the commodities that we do not see as being a loser coming out of this war.”

When it comes to emerging markets, the current environment is far from uniform. Sanger highlighted the divide between energy exporters and importers. “The problem is who are the energy haves and who are the energy have-nots.” Countries with energy resources are better positioned, while those dependent on imports face greater economic strain. “The energy have-nots get hurt much more than the energy haves… you cannot say one size fits all emerging markets.” Even so, he noted that in a broad risk-off environment, all markets tend to face pressure, regardless of their energy position.

The geopolitical situation surrounding the Strait of Hormuz adds another layer of complexity. If the passage is reopened under restrictive conditions, it could have lasting implications for global trade and energy pricing. Sanger warned, “If the Strait of Hormuz is opened by Iran under Iran’s terms and Iran collects a toll from everybody, that would be seen as negative.” Such a development would not only raise costs but also increase the risk premium embedded in commodity markets, prolonging uncertainty.

India, in particular, appears to be among the most vulnerable economies in this scenario. Sanger pointed out that beyond oil and gas, fertilisers pose a major challenge. “India is one of the hardest hit because of fertilisers.” With the agricultural cycle approaching, rising input costs could translate into higher food inflation. “Food inflation is almost certainly coming. Obviously, energy costs are going up… I think that Indian economic growth expectations that we have are completely out of the window.” The knock-on effects could impact consumption, industrial activity, and overall economic momentum.

Given these conditions, the investment strategy becomes increasingly defensive. Sanger advised caution in portfolio allocation, emphasizing resilience over aggression. “One has to be defensive. One has to look at companies which are somewhat able to benefit as energy providers… but you have to be defensive in the portfolio right now.” In a volatile environment where both equities and traditional hedges are under pressure, capital preservation is emerging as the primary goal.

On the timeline of the conflict, Sanger remains cautious and does not expect a quick resolution. “I do not see how Trump can just walk away and let Iran control the Strait of Hormuz.” He highlighted the logistical and geopolitical challenges involved in resolving the crisis, adding, “The reality is the math just does not add up immediately… unless something significant changes.”

Global markets are navigating a period defined by uncertainty, supply shocks, and tightening financial conditions. With oil at the centre of the storm and traditional safe havens faltering in the short term, investors are being forced to rethink their strategies. For now, caution, liquidity, and selectivity appear to be the only reliable anchors in an increasingly unpredictable world.