Let Fear Not Override Judgment
We are barely into the third month of 2026, and the global landscape has already shifted meaningfully. Just weeks ago, the narrative around India was decisively constructive — trade agreements with the European Union and the United States were progressing, and the Supreme Court of the United States had ruled tariffs illegal, reducing a major overhang on global trade flows.
Markets began discounting a synchronised improvement in India’s external environment.
That optimism has now been disrupted by escalating hostilities involving Iran, the United States, and Israel, with spillover risks across key Gulf nations. Even traditionally perceived safe hubs such as Dubai have entered the geopolitical risk matrix.
India is not a direct participant in this conflict — but economically, it cannot remain insulated.
The First Shock: Crude Oil
The most immediate transmission channel is crude oil.
India imports nearly 90% of its crude requirement. The Indian crude basket has surged from $63.08 per barrel to $80.16 per barrel — a 27% increase in under two months. This is not a marginal fluctuation; it is a macro-variable shock.
The risk is not limited to price alone. The effective disruption of the Strait of Hormuz has created uncertainty around supply flows of crude oil and LNG. If supply constraints intensify, India may have to rely more aggressively on its strategic petroleum reserves.
Higher crude prices create a dual pressure:
- Dollar Outflow Expansion – A larger import bill weakens the rupee.
- Higher Landed Cost – Depreciation compounds the inflationary effect.
This is the classic double-whammy for an import-dependent economy.
Inflation Dynamics and Monetary Policy
India structurally imports inflation. When crude rises, it seeps into transportation, manufacturing input costs, and eventually retail prices.
Recent data already indicated an upward drift:
- WPI: 1.81% (vs. 0.90% in December)
- CPI: 2.75% (vs. 1.33% earlier)
With oil at elevated levels, inflation expectations could re-anchor higher.
The Reserve Bank of India refrained from cutting rates in February. Under current conditions, further rate cuts appear unlikely. In a prolonged inflationary scenario, policy tightening cannot be ruled out.
Compounding the risk is the rising likelihood of El Niño conditions in the second half of 2026, which could push up food inflation.
Private sector capex — already tentative — may face additional delays if financing costs remain elevated. Higher inflation and uncertain demand visibility rarely coexist with aggressive investment cycles.
Remittances: The Silent Stabiliser at Risk
Approximately 10 million NRIs and PIOs reside across the Gulf region. Remittances to India were close to $135 billion in FY25, and likely higher in FY26.
Any economic disruption in the Gulf can moderate remittance flows — a key support to India’s current account and rural consumption. A slowdown here would add another layer of macro sensitivity.
Fiscal Math Under Pressure
Higher crude prices inflate subsidy burdens and widen the import bill. Slower remittances and capital outflows could pressure the current account. Together, these factors may strain fiscal consolidation targets if growth momentum moderates simultaneously.
The government’s glide path remains intact — but the margin for error narrows.
FPI Behaviour: Risk-Off Reflex
Foreign Portfolio Investors (FPIs) injected approximately ₹22,000 crore in February, reflecting improved sentiment. However, early March has already witnessed withdrawals exceeding ₹5,000 crore.
In periods of geopolitical uncertainty, capital naturally rotates toward perceived safety. Emerging markets, including India, tend to face a “wait-and-watch” allocation approach when macro signals turn ambiguous.
The Core Question: Duration
The duration of this conflict is the single most important variable.
My base case does not assume a prolonged, structural war akin to the Russia–Ukraine conflict. The working assumption is that tensions may de-escalate within weeks rather than quarters.
However, in geopolitics, conviction must always be probabilistic — never absolute.
Investment Implications
Markets dislike uncertainty more than they dislike bad news. Once clarity emerges, risk assets typically reprice swiftly.
If tensions ease:
- Crude corrects.
- Inflation expectations soften.
- Rate-cut probabilities re-enter discussion.
- FPIs reallocate toward growth markets.
- Risk appetite revives.
That combination can trigger a sharp recovery in Indian equities.
Strategy: Discipline Over Emotion
Volatility is the admission fee for long-term wealth creation in equities.
If capital is not required for the next three years, staggered allocation during periods of stress remains a rational strategy. Panic liquidation in uncertain phases often leads to regret once stability returns.
The short term is hazy. The medium-to-long-term structural thesis for India — demographics, formalisation, manufacturing push, digital penetration — remains intact.
Wealth in equities is rarely created by superior information alone; it is created by superior emotional control.
This phase is an interruption — not a structural reversal.
When the dust settles, markets will discount normalisation far before headlines turn comfortable.
Let fear not override judgment.