Iran-Israel Conflict: Impact of a prolonged crisis on stock markets, gold & crude

The world is watching in shock as tensions escalate in the Middle East. On Tuesday, Iran launched around 180 ballistic missiles targeting Israel's military bases and security installations. This aggression followed the assassination of Hizbullah leader Hasan Nasrallah, further inflaming the region.

The ripple effects of this conflict are being felt far beyond the Middle East, as the Indian Stock Market has begun to show significant corrections. After hitting an all-time high of 26,277, the Nifty has dropped over 2% in just three days.

One of the primary reasons for this market correction is the rising oil prices. For the third consecutive day, oil prices have surged, with Brent crude edging towards $75 a barrel. This sudden spike threatens to derail central banks' plans for rate cuts, as inflation fears loom large.

And it's not just oil that's impacting investor decisions. Global investors are growing cautious. With inflation rising and geopolitical uncertainty lingering, many are reallocating funds from riskier assets such as Indian equities to safe havens like gold.

The revival of the Chinese stock market is also attracting FIIs. According to Bloomberg, China's CSI is up 22% from its September lows. China is regaining the investors it had lost for over 10 months. As a result, foreign investors have offloaded over ₹15,000 crore from the Indian stock market in the last three sessions.

Interestingly, while oil prices have surged, gold prices saw a slight dip after an initial rally. However, traders remain cautious, knowing that any escalation in the conflict could send gold prices soaring once again.

Meanwhile, OPEC+ has reaffirmed plans to increase oil output starting in December, which could help stabilize the energy market in the long term. Additionally, the U.S. Energy Information Administration reported a surprising rise in crude inventories, which has temporarily tempered the surge in oil prices.

Despite these developments, financial experts believe the Indian stock market will stabilize eventually. However, short-term corrections could persist if oil prices remain high and investors continue to seek safer options.

The Iran-Israel conflict is a stark reminder of how quickly global events can affect financial markets. For Indian investors, it’s essential to stay informed, keep a diversified portfolio, and monitor global events closely to navigate these uncertain times.

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