The average Indian investor now tracks global geopolitical events and shipping routes in the Persian Gulf before making decisions. This marks a shift from previously focusing solely on domestic indicators like corporate earnings, inflation, and market valuations. Such changes are indicative of a fundamental transformation in market dynamics, revealing how interconnected the global economy has become.

In March 2026, foreign portfolio investors withdrew an unprecedented Rs 1.14 lakh crore (approximately $12.3 billion) from Indian equities. This significant outflow represented the largest on record for a single month. Consequently, the Sensex concluded the financial year approximately 7 per cent below its previous level, experiencing its worst annual performance since the COVID-19 crisis in 2020. These developments were triggered more by external geopolitical turmoil than by weaknesses within the domestic economy.

The Strait of Hormuz’s Impact on Markets

At the heart of the recent market volatility is the Strait of Hormuz, a crucial maritime passage that transports about 20 million barrels of oil daily, accounting for roughly one-fifth of global consumption. Any disruption within this critical corridor has immediate and significant implications for international trade and financial markets.

In late February 2026, escalating tensions involving the US, Israel, and Iran led to a sharp decline in shipping traffic through Hormuz. A rapid assessment by UNCTAD indicated vessel transits plummeted by over 90 per cent at the height of these disruptions. As a result, oil prices surged dramatically, with Brent Crude increasing from approximately $70 per barrel to above $120 within a few weeks.

This spike in oil prices was more than a mere fluctuation; research from the Federal Reserve Bank of Dallas has suggested that a complete closure of the Strait could lead to a 20 per cent drop in global oil supply, surpassing previous crises like the 1973 oil embargo. Additional assessments indicated that global growth could decline from 2.9 per cent in 2025 to 2.6 per cent in 2026. Such outcomes would significantly affect many economies, particularly those heavily reliant on oil imports.

India’s High Vulnerability to Geopolitical Shocks

India’s economy is particularly susceptible to fluctuations in global oil prices. The country imports around 85 to 90 per cent of its crude oil needs, a significant portion of which transits through the Strait of Hormuz. An increase in oil prices leads to numerous and immediate repercussions for the Indian economy.

A prolonged rise in oil prices—from $60 to $100 per barrel—can add tens of billions of dollars to India’s annual import costs. Additionally, the ballooning import bills increase the current account deficit, exerting further pressure on the Indian rupee. The Reserve Bank of India’s October 2025 Monetary Policy Report noted that a 10 per cent increase in oil prices could raise inflation by approximately 30 basis points.

During the most recent crisis, the rupee dipped to 94.85 against the dollar. The Indian government responded by cutting excise duties on petrol and diesel, a move estimated to cost the exchequer around Rs 1.5 trillion. As a result, global financial institutions, such as Goldman Sachs and Nomura, have revised their outlook on Indian equities, highlighting a shift in investor sentiment.

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