Oil, Rupee, and Risk: A Strategic Brief on India’s Market Reaction to the U.S.–Israel Strikes on Iran

Towards the end of the month of February 2026, the United States and Israel conducted air attacks over Iran. The assault reportedly killed senior Iranian military officials, including top leadership figures. Not long after that, Iran responded with drones and missiles to the Gulf in various locations. Tension rose fast. The oil markets responded in hours. The prices of oil shot to low eighties. That may not seem huge globally, but for India, it is significant. Nearly 90 percent of the oil is imported in India. With an increase in the price of oil, the country has to pay more in dollars. That strains rupee and increases the cost of fuel, transport and daily commodities.

On March 2, stock markets in India dropped drastically. The Sensex and Nifty declined due to the withdrawal of the foreign money. Rupee deteriorated close to 91 per dollar. Bond yields moved up. The rise in oil encouraged the investors to become cautious since it can increase inflation and compel the reserve bank of India to maintain the interest rates at high levels. First of all, airlines and companies that rely on fuel experienced the pressure. Stability was more in oil producers and exporters who made earnings in dollars.

Of bigger concern is the Strait of Hormuz which is a major oil route. In case the supplies are held down, the prices can also be high. India has short term oil deposits. Nevertheless, it is a wake-up call to this crisis. It is no longer long term to think of energy security, more powerful reserves, and more clean power. They are urgent needs.