Crude oil rises above $120: Price surge threatens markets, puts rupee under pressure

Disruptions around the Strait of Hormuz, a key oil transit route, have added to the uncertainty, taking crude oil prices to their highest levels since mid-2022.

In Short

• Brent crude rose 2.52%, WTI up 1.38%, amid US-Iran tensions and supply risks
• Higher oil costs threaten company margins and weigh on equity markets
• Oil prices crossed $120 per barrel, raising concerns for India’s economy

Oil prices have surged past $120 per barrel, pushing global markets into a cautious zone and raising fresh concerns for India’s economy, equity markets and the rupee.

Early Thursday trade showed Brent crude at $121 a barrel, up 2.52%, while WTI crude climbed to $108.35, gaining 1.38%. The sharp move comes as fears grow over a prolonged US blockade on Iranian exports and no visible progress in nuclear negotiations, both of which point to tighter global supply.

Disruptions around the Strait of Hormuz, a key oil transit route, have added to the uncertainty, taking prices to their highest levels since mid-2022.

WHY OIL IS DRIVING MARKET NERVES

The rise in crude is not just a commodity story, it quickly feeds into equities, currencies and inflation expectations.

Higher oil prices increase input costs for companies, especially in sectors like aviation, paints, logistics and chemicals, where fuel is a key expense. That, in turn, can squeeze margins and weigh on earnings expectations.

This is already reflecting in early market signals. GIFT Nifty was down 73.50 points, or 0.30%, at 24,182.50, suggesting a soft start for Dalal Street. Traders say that even if earnings remain supportive, elevated oil prices cap upside and keep markets volatile.

Global cues are not offering much comfort either. Wall Street ended flat overnight as investors balanced rising crude with signals from the US Federal Reserve. In Asia, markets were largely lower, with Japan’s Topix down 1% and Hong Kong futures weaker, reflecting a risk-off mood.

RUPEE FACES FRESH HEADWINDS

For India, the immediate pressure point is the rupee. As a major oil importer, higher crude prices mean a larger outflow of dollars, which tends to weaken the domestic currency.

The rupee is expected to open in the 94.90–94.95 range against the US dollar, after closing at 94.8450 in the previous session. It is already headed for its third consecutive weekly decline, having given up most of the gains seen earlier in the month.

The pressure is coming from two sides. On one hand, oil prices are pushing up India’s import bill. On the other, a stronger dollar, supported by rising US bond yields and cautious signals from the Federal Reserve, is making it harder for emerging market currencies to hold ground.

THE BIGGER MACRO IMPACT

If crude prices stay elevated for long, the impact could spread beyond markets. Higher oil costs can push up inflation, increase the government’s subsidy burden and widen the current account deficit. This combination can limit policy flexibility for the Reserve Bank of India and keep interest rate expectations uncertain.

For equities, the situation becomes more complex. While domestic earnings and liquidity can offer support, sustained high oil prices tend to act as a drag on valuations, especially in sectors sensitive to fuel costs.

Markets are now closely tracking developments in the West Asia conflict and any signals on easing supply disruptions. The trajectory of crude prices will remain the key trigger.

If oil sustains above $120, pressure on both markets and the rupee is likely to persist. Any signs of easing tensions, on the other hand, could quickly cool prices and bring some relief to investors.

For now, the message from markets is clear: oil has once again become the biggest variable shaping sentiment.

- Ends