Oil prices have surged to multi-month highs as the Iran conflict enters its second month and the United Arab Emirates announced its exit from OPEC and OPEC+, creating significant supply disruption concerns. Brent crude reached $111.13 per barrel after rising 2.68% in one session, while WTI crossed the $100 level for the first time since April 13, with U.S. crude rising 3.68% to $99.92 per barrel. The conflict has disrupted energy transport through the Strait of Hormuz, a key pathway for global oil shipments, with the inability to move energy supplies remaining a major issue for global supply. A US official confirmed that President Donald Trump is unhappy with the latest Iranian proposal to end the war, which would delay nuclear negotiations and has slowed hopes for a resolution.
India's secondary aluminium producers are experiencing severe supply disruptions as the West Asia conflict disrupts scrap imports. India produces nearly half of its 4.2 million tonnes of aluminium through its secondary sector, with the country depending heavily on scrap from the European Union, the US and West Asia, which accounts for about 30 per cent of shipments. According to The Hindu BusinessLine, scrap prices have jumped by nearly 30 per cent since the Iran conflict began earlier this year, with various units running at lower capacities and production cuts of 20-40%. Jayant Jain, managing director at G. R. Metalloys, reported that "There is a hand-to-mouth situation in scrap plants because of shortages and price increase." The strain is expected to ripple through to the auto sector, with companies such as Maruti Suzuki, Tata Motors, Mahindra & Mahindra and Hyundai Motor India consuming about 60% of domestically produced secondary aluminium.
Corporate borrowing costs are experiencing a reversal after a brief period of decline in mid-April, driven by concerns over the West Asia conflict impacting oil prices. According to The Economic Times, India's 10-year benchmark yield has climbed to around 6.98% from as low as 6.86% by April 15, with little clarity on the direction of the West Asia war and its impact on oil prices. This represents a significant shift from the earlier period when yields had compressed to 7.13% early April before the recent uptrend. The current environment shows selective appetite in the debt market, with many issuers finding it difficult to raise the full amount they had initially planned. U.S. bond prices fell and yields rose with the 2-year Treasury yield increasing to 3.836% and the 10-year yield rising to 4.346%, reflecting investor concerns that higher energy prices may push inflation higher for longer.
Recent state-backed bond issuances demonstrate the challenging market conditions facing corporate borrowers. As reported by The Economic Times, SIDBI raised only ₹3,025 crore at 7.61% against its planned ₹6,000 crore three-year bond sale on Tuesday. Similarly, NABARD raised ₹4,250 crore against a planned ₹7,000 crore at 7.48% for a similar tenor a week earlier. These figures indicate that funding costs are starting to move higher, with debt market participants noting that the two issuances together indicate that borrowing costs are beginning to inch up again. The challenging conditions are further exacerbated by higher oil prices lifting inflation expectations, creating additional pressure on corporate borrowing costs.
The geopolitical tensions have manifested in significant capital flow disruptions across global markets. According to SBI Capital Markets Limited, foreign portfolio investors withdrew USD 16.6 billion from Indian markets in FY26, including a record USD 19.7 billion from equities, contributing to an 11 per cent depreciation in the rupee over the period. The outflows, alongside declining mutual fund inflows that are down 9.7 per cent year-on-year to ₹7.4 trillion, show the nervousness among investors. Debt-oriented funds were particularly affected, witnessing an 84 per cent drop in inflows, while corporate bond issuances fell 5 per cent year-on-year in FY26, marking the first decline in four years, as elevated yields deterred borrowing. Global stock markets declined with MSCI global stocks falling 0.53%, while the Nasdaq fell 0.90% and the S&P 500 dropped 0.49% as investors questioned the strength of the artificial intelligence boom.
The geopolitical tensions are creating broader economic challenges, with higher energy costs and existing tariff pressures likely to push inflation risks upwards globally. According to SBI Capital Markets Limited, the balance of risks has "tilted to the upside on prices," narrowing the window for rate cuts and increasing the likelihood of prolonged policy pauses or even hikes. In India, cuts in fuel levies to cushion consumers from rising crude prices could undermine revenue targets, even as expenditure pressures increase due to higher subsidies and potential stimulus measures. Despite the turbulence, India's growth outlook remains relatively resilient, with real GDP projected to expand by 7.6 per cent in FY26, supported by strong consumption, though external headwinds including supply chain disruptions and weaker export demand could cloud prospects for FY27. The UAE exit from OPEC may reduce cartel influence, leading to more unpredictable oil prices in the future, while analysts say volatility may remain high as markets react to geopolitical news and central bank decisions.
