Indian Markets Face Heightened Volatility as Middle East Conflict Disrupts Oil Flows

Traders in India are bracing for additional downside pressure in equities as geopolitical tensions in the Middle East escalate, disrupting one of the world’s most critical oil chokepoints. The Strait of Hormuz, through which approximately 20% of global oil supply passes, has seen nearly all commercial shipping suspended amid fresh attacks on vessels and regional military posturing. This has triggered a sharp spike in global crude prices, with Brent crude futures climbing to $98.60 per barrel on March 5, 2026, up 12.3% from the prior week. The fear index for India’s equity market, as measured by the NSE India VIX, surged to 28.7, its highest level since October 2024, reflecting growing investor anxiety over potential supply shocks and inflationary pressures. The NSE Nifty 50 index dropped 1.8% on March 5, led by losses in energy, defense, and consumer goods sectors, which are sensitive to rising input costs and geopolitical risk. The Indian rupee weakened to 83.45 against the US dollar, adding to inflation concerns. Global risk sentiment deteriorated sharply, with the CBOE Volatility Index (VIX) rising to 22.1, signaling increased expected market turbulence. U.S. officials are reportedly advancing a proposal to establish a coalition to provide escorted passage for tankers through the Strait, but implementation remains uncertain. In India, domestic energy firms such as Bharat Petroleum Corp. and Indian Oil Corp. are preparing contingency plans amid rising fuel import costs and concerns over domestic supply stability. Market participants now await further developments in diplomatic channels and shipping activity in the region, with analysts warning of prolonged volatility if the Strait remains closed beyond a few days. The energy and defense sectors are expected to remain under pressure as long as the conflict persists.