Iran-Israel Tensions Trigger Global Market Volatility: What It Means for India

Global markets are facing significant turbulence as the escalating conflict between Iran and Israel sends shockwaves through the financial world. On Tuesday, Iran launched around 180 missiles at Israel, dramatically heightening fears of a broader Middle East conflict. The attack, reportedly in retaliation for the killing of Hezbollah leader Hassan Nasrallah, came after nearly a year of ongoing conflict between Israel and Hamas. Although Israel’s air defences intercepted most of the missiles, the markets had already reacted, triggering a global sell-off.

Impact on Global Markets

US and European stock markets plunged as investors feared the worsening geopolitical instability in the region. The Dow Jones, FTSE, and other major indices fell sharply, reflecting the uncertainty looming over the global economy. In addition to the missile strikes, a strike by dockworkers at key US ports added more pressure, raising concerns about supply chain disruptions and inflation spikes. This double blow led to a cautious investor mood across global markets.

Oil prices surged as the risk of supply chain disruptions in the oil-rich Middle East became apparent. Brent crude saw a significant jump, contributing to heightened market anxiety. As tensions rose, investors flocked to safe-haven assets like gold, which hit a new record high of over $2,600 per ounce.

Asian Markets in Decline

The impact of the conflict wasn’t limited to Western markets. Asian stocks mirrored the declines, with Japan’s Nikkei dropping 2% and South Korea’s Kospi falling by 0.6%. India, a significant player in global markets, saw its stock market take a severe hit. The Sensex and Nifty 50 plunged, marking four consecutive sessions of losses. The BSE Sensex dropped over 1,000 points, wiping out ₹5.31 lakh crore in market capitalisation in a single day. This marked a sharp correction after a three-week bull run, highlighting the fragility of global markets amid geopolitical uncertainties.

Diamonds: A Silver Lining for Indian Exporters

While most markets struggled, the conflict may present an unexpected opportunity for India’s diamond exporters. Israel and India are competitors in the global cut and polished diamond market. Any disruptions in Israeli diamond supply due to the conflict would benefit Indian exporters, who could potentially reduce their inventory levels. With Israel’s diamond exports already down by a third in 2024, further drops are expected if tensions continue.

India, the world’s largest exporter of cut and polished diamonds has also experienced a slowdown, with exports down 20% in the first five months of the fiscal year. However, the current geopolitical situation might open new avenues for Indian diamond traders, especially as the US and China, two major importers, continue to rely on these supplies.

Looking Ahead of the Iran-Israel Conflict

As the conflict unfolds, the global financial markets remain on edge. Investors closely monitor the situation, particularly potential disruptions to global oil supply and how central banks in the US and Europe will respond to inflationary pressures. Meanwhile, the US dollar has strengthened, becoming a safe-haven currency in these uncertain times.

While the Middle East conflict has triggered market volatility, Indian diamond exporters may find new opportunities in this challenging environment. However, the broader market remains cautious as geopolitical tensions drive uncertainty across global financial systems.