Iran war hits India harder than US, says expert, advises global diversification for investors

The escalating conflict in the West Asia has unsettled global financial markets, forcing investors to rethink some of the most popular trades of 2026. Global equities have turned volatile, the US dollar has strengthened, and traders are scaling back expectations of aggressive rate cuts by the US Federal Reserve as geopolitical risks push crude oil prices higher.

Market veterans say such periods often trigger emotional decision-making, with fear of losses and uncertainty clouding judgment. However, experienced investors argue that geopolitical shocks are not the time to abandon strategy but to stay disciplined and aligned with long-term market trends.

Subho Moulik, Founder & CEO of Appreciate, said the current conflict carries disproportionate economic risk for Asia, particularly India, because of its dependence on oil imports and exposure to the Strait of Hormuz.

“Roughly 20 million barrels of crude oil move through the Strait of Hormuz every day. India accounts for 14.7% of all crude transiting the strait, and more than 40% of India’s own crude imports pass through it, while the United States receives just 2.5%,” he said.

India imports about 87% of its crude oil, making the economy highly sensitive to price spikes. According to Moulik, every $10 rise in Brent crude can widen India’s current account deficit (CAD) by about $15 billion, while a sustained 10% rise in oil prices can increase the CAD by 0.5% of GDP and reduce growth by roughly half a percentage point.

Brent crude futures were trading at $91.71 per barrel at 0001 GMT, down $7.25 or about 7.3%, after sharp volatility in the previous session. U.S. West Texas Intermediate (WTI) crude fell $6.12, or 6.5%, to $88.65 per barrel, after earlier surging to an intraday high of $119.50 on Monday amid escalating geopolitical tensions.

He noted that the market reaction highlights this imbalance. “The Sensex fell 1,048 points and the Nifty declined 313 points, while the S&P 500 recovered after an early fall. Around 84% of crude flowing through Hormuz goes to Asian markets, making this disproportionately an Asian economic risk rather than a global one.”

Two possible scenarios for investors

Moulik said investors should prepare for two possible outcomes — easing tensions or prolonged escalation — but both scenarios support staying invested.

“If tensions subside, history is clear. Since World War II, the S&P 500 has been higher one year after major geopolitical shocks 73% of the time, according to Hartford Funds research. Markets rose sharply after the Ukraine war and also gained in the months following the October 2023 Hamas attack. The average geopolitical shock causes about a 5% drawdown that recovers in roughly 40 days,” he said.

If the conflict continues, the pressure on India could intensify. Aviation companies face higher fuel costs, oil marketing companies see margin pressure, and sectors such as paints, tyres and chemicals face input cost inflation. Capital goods firms with West Asia exposure could also see demand risks.

Yes Bank estimates suggest that if oil averages $75 per barrel, India’s CAD could widen to 1.5% of GDP in FY27, with higher prices worsening the outlook further. A wider deficit can weaken the rupee, increase imported inflation, and limit the Reserve Bank of India’s room to cut rates.

In contrast, the US market structure may remain more resilient. Higher oil prices benefit shale producers and energy companies, while the largest US technology firms remain largely insulated from Gulf supply routes. Moulik noted that companies such as Meta, Amazon, Microsoft and Alphabet together committed nearly $390 billion to AI-related capital spending in 2025, a sector not directly affected by oil supply disruptions.

Diversification and overseas exposure

According to Moulik, both scenarios point to the same conclusion — Indian investors should consider diversifying geographically.

“The path where geopolitical risk is highest is also the path where India-centric portfolios face the greatest strain, while US markets appear structurally more resilient. The rupee’s long-term depreciation against the dollar strengthens the case for holding some dollar-denominated assets,” he said.

He suggested that investors could consider allocating 20–30% of their portfolio to overseas equities or exchange-traded funds through the Liberalised Remittance Scheme (LRS), especially for exposure to global technology, defence and energy sectors.

Cross-border investing is gaining popularity as investors seek diversification across currencies, sectors and economies. While India remains a strong long-term growth market, the US continues to dominate global capital markets because of its depth, liquidity and wide range of listed products.

Experts say using US markets as a gateway to global investing can help retail investors access international indices and ETFs more efficiently, reducing concentration risk for portfolios that are heavily dependent on the Indian economy.