Iran And Israel War: Impact On Markets And Rising Volatility
2024 marked a rapid escalation of long-standing hostilities between Iran and Israel1. Subsequently, 13 June 2025 signalled the grim beginning of the Iran and Israel war when Israel launched a series of surprise attacks on 100 key targets in Iran2.
Along with eliminating key military figures, the attacks caused significant damage to the Natanz Nuclear site, according to satellite imagery. The conflict is continuing, as both sites report damages to property and human life.
Amidst the rising tensions, not only the domestic economies of Iran and Israel but also the global economy is taking significant hits. The impact of the Iran-Israel conflict on India rupee, along with major market volatility, is substantial.
Given the concentration of the oil market in the Middle Eastern region, these tensions have a significant impact on related sectors, resulting in inflation and investor under-confidence.
Iran And Israel War Triggers Surge In Oil Price Volatility
Immediately after the bombings began on Friday (13 June 2025), oil prices soared 7%3. Global oil prices witnessed an increase of more than 2% on 17 June 2025 when Donald Trump urged evacuation from Tehran4. The conflict has caused a significant impact on global oil prices, which might cause a crude price surge in India.
Understanding and safeguarding against any prospective oil price volatility in India requires an acknowledgement of global trends.
The table below shows the changes in Brent and West Texas Intermediate (WTI) crude oil. These metrics are indicative of global oil prices. Brent aids in the pricing of more than two-thirds of globally traded oil5. Moreover, WTI acts as a key benchmark of the US markets.
| Date | Brent Close (USD) | Brent daily change (%) | WTI Close (USD) | WTI daily change (%) |
| 13 June | 74.23 | +7.02 | 72.98 | +7.26 |
| 16 June | 73.23 | -1.35 | 71.77 | -1.66 |
| 17 June (current trading) | 73.77 | +0.7 | 72.35 | +0.8 |
Source: Reuters
Why The Middle East War Is Raising Oil Prices?
The fluctuating oil prices amidst the rising tensions pose a key question. Investors and market enthusiasts might wonder why the Iran and Israel war is causing significant fluctuations in the oil market.
Understanding the factors discussed below might not only solve this critical question but also aid in understanding the impact of the Middle East War Oil on India.
1. Major supplier: OPEC stands for the Organisation of the Petroleum Exporting Countries. It is a body that constitutes major oil exporters, including Iran, Russia, and many more. Iran is the third-largest producer in the organisation as of 20256. Therefore, any threat to the Iranian economy will significantly impact the oil prices.
2. Damage to energy infrastructure: According to the Iranian Ministry of Petroleum, Israeli attacks damaged two significant oil facilities on Saturday (14 June 2025)7. The two locations were Shahran fuel and gas depot and one of the largest oil refineries in Iran, Shahr Rey.
3. Suspension of activities: Kharg Island is responsible for 90% of Iranian oil shipments8. Activities in this location have been halted. Increased tensions might lead to further suspensions, causing global shortages and price fluctuations.
4. Global centre: Iran is not only a major supplier of oil, but it also sits at the centre of global oil movements9. For instance, the Strait of Hormuz witnesses 20% of the global oil passages. Therefore, tensions in the region will also indirectly impact oil supply chains, which do not include Iran directly.
How Oil Prices Affect Stock Market Volatility
Oil market volatility amidst the Iran and Israel war not only impacts the fuel in our vehicle tanks but also an array of other commodities.
Oil prices in India impact various other aspects of life. To cushion against this trend, it is important to understand the global trends.
1. Impact on inflation, interest rates, and currencies
Reports suggest an increase of USD 10 per barrel of crude oil can cause a 0.4% to 0.6% rise in inflation10. The conflict witnessed a substantial rise in oil prices. For instance, oil prices surged 7% on 13 June 2025.
If inflation increases, the central banks might increase the interest rates on credit to absorb the liquidity from the market. Moreover, monetary policies might be targeted to reduce the interest rates on deposits.
Although a clear impact on inflation might take some time to materialise, the impact on currencies is easier to identify. For instance, on Monday, 16 June 2025, the rupee opened at INR 86.19 per dollar11.
This was 10% lower than the previous close of INR 86.08. However, an RBI intervention and fall of the dollar index helped minimise the loss, as the rupee closed at INR 86.06 per dollar.
2. Global stock markets’ reaction
Downgrading was noted in various market indices as tensions began. The Indian stock market conflict was especially unique.
On 13 June 2025, the BSE Sensex fell by 1,300 points, whereas the Nifty 50 dropped below 24,500 marks12. However, by 16 June 2025, the market began recovery as the Sensex closed at 81,796 and the Nifty at 24,946.5013. Apart from the Iran and Israel war, other factors like the Ahmedabad crash might have played a role in this trend.
Similarly, the S&P 500 was down by 0.6%, and a fall of 1.79% was witnessed in the Dow Jones Industrial Average.
The FTSE 100 index of the United Kingdom also closed 0.39% lower amidst the rising tensions and growing uncertainties.
Oil Spike And Inflation: What It Means For Indian Investors
The Iran and Israel war can impact the oil prices, which in turn impact certain key aspects of the Indian economy. Some of these correlations are discussed below.
1. Impact on fuel costs, inflation, and portfolio returns
The global increase in crude oil prices might increase the fuel costs in India. Although it is too soon for the impact to materialise, ongoing tensions might cause inflationary trends as well.
For instance, the 3% gain in Oil India and ONGC shares amidst the rising conflict shows the market anticipation of increasing fuel costs14. The central bank might change its monetary policy to absorb liquidity and curb the inflationary trend.
2. Top Safe Haven Assets In India
If the central bank curbs interest rates on investments, specific investment avenues can provide a geopolitical risk portfolio hedge.
- Gold investment during war: Gold often acts as a safe haven investment during market instability. For instance, at USD 3,423.30 per ounce, gold has reached its highest price range in approximately two months15.
- Investing in defence stocks: During tensions, defence companies might experience a surge in share prices. For instance, post Operation Sindoor, defence stocks experienced 39% gains over two weeks. Therefore, investing in small-cap defence companies or large-cap defence companies might yield results.
- Bond market in India: Conflict hedge can be provided by the bond market in India because it is a debt instrument with a fixed interest component and fixed maturity period.
How To Keep Your Investments Safe During War
Even amidst the growing uncertainty, investors can optimise the safety of their investment through portfolio diversification. Allocation across safe-haven instruments might yield capital preservation and appreciation.
The Grip Marketplace can aid investment in one such safe-haven instrument, which is a bond. It is a secondary bond trading platform where investors can compare different bonds with shorter maturity periods. Comparison of live bond prices, ratings, and other parameters aids decision-making.
Conclusion
The rising tensions between Iran and Israel have posed a serious threat to life and property. The impact of the rising conflict is not restricted to the region but has global consequences. Rising oil prices pose a significant threat to inflation and currency rate fluctuations. Analysis of key safe-haven investments can aid capital preservation amidst rising uncertainties.
The Grip Marketplace can aid in the comparison of secondary bond prices and simplify bond investing. Visit Grip Invest today!
FAQs On Iran And Israel War Impact On Market
1. How are equity and bond markets reacting to this conflict?
On 13 June 2025, the Sensex fell by 1,300 points, whereas the Nifty 50 dropped below 24,500 marks. However, by 16 June 2025, the market began recovery as the Sensex closed at 81,796 and the Nifty at 24,946.50. Moreover, bonds might act as safe-haven investments amidst rising conflicts. However, reports do not suggest any significant change in the Indian bond market.
2. How does the war in the Middle East affect oil prices?
The Iran and Israel war has caused significant changes in the oil prices. 13 June 2025 witnessed a 7% rise in oil prices. The trend might continue if the conflict persists. The impact is primarily due to the important role Iran plays in the oil supply chain. For instance, Iran is the third-largest producer in OPEC as of 2025.
3. Will central banks act differently because of rising oil-driven inflation?
Oil is a key commodity that impacts various sectors of an economy. Rising oil prices can pose inflationary pressure in an economy. In such a scenario, the central bank may change its monetary policy to absorb the excess liquidity in the market. For instance, the bank may move to increase the credit interest rate to reduce the money supply in the economy.
References:
1. Brookings, accessed from: https://www.brookings.edu/articles/israel-strikes-iran-what-happens-next/
2. Brookings, accessed from: https://www.brookings.edu/articles/israel-strikes-iran-what-happens-next/
3. Reuters, accessed from: https://www.reuters.com/world/china/oil-prices-jump-more-than-4-after-israel-strikes-iran-2025-06-13/
4. CNBC, accessed from: https://www.cnbc.com/2025/06/17/oil-prices-rise-as-iran-israel-conflict-fans-supply-worries.html
5. Statista, accessed from: https://www.statista.com/statistics/262861/uk-brent-crude-oil-monthly-price-development/
6. Shana, accessed from: https://en.shana.ir/news/652815/Iran-maintains-position-as-OPEC-s-third-largest-producer
7. Aljazeera, accessed from: https://www.aljazeera.com/news/2025/6/15/which-iranian-oil-and-gas-fields-has-israel-hit-and-why-do-they-matter
8. Reuters, accessed from: https://www.reuters.com/markets/commodities/israel-iran-war-already-takes-toll-oil-gas-sector-2025-06-17/
9. Reuters, accessed from: https://www.reuters.com/markets/commodities/israel-iran-war-already-takes-toll-oil-gas-sector-2025-06-17/
10. Money Control, accessed from: https://www.moneycontrol.com/news/business/rising-crude-oil-prices-warrants-careful-observation-from-rbi-on-inflation-13129014.html
11. The Economic Times, accessed from: https://economictimes.indiatimes.com/markets/forex/rupee-holds-steady-at-86-06-amid-rbi-intervention/articleshow/121895758.cms?from=mdr
12. Indian Express, accessed from: https://www.newindianexpress.com/web-only/2025/Jun/16/oil-basmati-rice-and-even-the-internet-the-israel-iran-war-can-hit-india-hard
13. Livemint, accessed from: https://www.livemint.com/market/stock-market-news/sensex-jumps-over-700-points-nifty-50-inches-closer-to-25k-what-s-driving-indian-stock-market-amid-israel-iran-war-11750059507285.html
14. Economic Times, accessed from: https://economictimes.indiatimes.com/markets/stocks/news/ongc-oil-india-shares-gain-up-to-3-as-israel-iran-conflict-drives-crude-higher-drag-on-refiners-tyre-makers/articleshow/121875306.cms?from=mdr
15. BBC, accessed from: https://www.bbc.com/news/articles/cn4qe4w1n2go
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