The shockwaves of Saturday's attack in Saudi Arabia on the world's biggest oil processing factory were felt worldwide on Monday morning.
The attack for which Yemen's Houthi rebels claimed responsibility has stopped half of the Saudi production, and over 5 per cent of the global oil supply.
Brent crude futures shot up by $11.7 to hit $71.9/barrel intraday on Monday. Losing 5.7 million barrels a day of output is the single biggest disruption for Saudi Arabia ever, more than the loss of Kuwaiti and Iraqi supply in August 1990 and Iranian output in 1979 during the Islamic Revolution.
This has ramifications in India as Saudi Arabia is the second largest country India imports oil from.
Indian equity markets registered sharp losses on Monday, with the S&P BSE Sensex index closing 0.70 per cent lower at 37,123.31, and the broader NSE Nifty benchmark settling with a loss of 0.65 per cent - at 11,003.50, dragged lower by losses in oil refiners. Both the benchmark indices suffered their worst single-day fall since September 3, a day on which the Sensex and Nifty had plunged 2.06 per cent and 2.04 per cent respectively.
If the oil prices continue to rise, it could widen India's current account deficit as every dollar rise in oil price could swell the country's import bill by approximately Rs 10,700 crore annually, about $1.49 billion.
The S&P BSE Energy sectoral index ended 1.33 per cent lower on Monday.
Ashish Chaturmotha, head-research, Sanctum Wealth Management, however, says that oil prices can remain range-bound.
"It needs to be seen whether this is a long-term or short-term effect and whether it will have any cascading effect. If the oil crosses $69-70/barrel, only then it will have any meaningful impact and markets will react," he said.
Saudi Arabia did not give any timeline but said could take up to weeks for restoration of the oil facility to its full capacity.
However, US President Donald Trump blamed Iran, saying, "We know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!"
He authorised the release of America's strategic oil reserves, if needed. "Based on the attack on Saudi Arabia, which may have an impact on oil prices, I have authorised the release of oil from the Strategic Petroleum Reserve, if needed, in a to-be-determined amount," Mr Trump said.
This seem to have calmed the nerves across the global markets as Brent crude futures remained in $66-67/barrel range for the rest of the session.
The oil market shock has come in at a time when India's economic growth has hit a six-year low in the first quarter of the current financial year. As of August, inflation is down however if the oil prices continue to rise, it may rise driven by higher transportation and logistics costs thus impacting the end-consumer as well.
Official data last week showed consumer inflation was at 3.21 per cent in August, remaining below the Reserve Bank of India's medium-term target for the thirteenth month in a row.
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