Explained: How Iran War Drove Up Costs And Shook Indian Markets

The Iran war has emerged as one of the defining geopolitical events of 2026, exposing several vulnerabilities in the Indian economy.

From oil supply risks and inflationary pressures to trade disruptions and broader geopolitical uncertainty, the conflict sent shockwaves across markets. The impact was amplified by a weakening rupee and a sharp rise in crude oil prices, a double blow for an import-dependent nation like India, making energy purchases significantly more expensive.

The Indian rupee, which appreciated slightly from 85.79 against the US dollar to 85.54 between January 2 and June 30 in 2025, sharply fell from 90.12 to 94.60 between January 2 and June 30 in 2026. Amid the dollar's appreciation, the Indian rupee was among the most impacted currencies worldwide.

In the same time, supply shortages lifted oil prices and coupled with a weak currency, the oil purchase became even more expensive. Against a price of $67.72 a barrel in April 2025, the oil prices jumped to $114.48 a barrel in April 2026, according to the Petroleum Planning & Analysis Cell. Even in June 2026, the average oil price of the Indian basket is $83.85 a barrel against $69.77 a year ago.

These events made foreign investors cautious and they pulled substantial funds out of Indian equities, weighing on market sentiment. The foreign portfolio investors had pulled out Rs 65,334 crore during January-June 2025 while the withdrawal jumped to Rs 2,12,872 crore during January-June 2026, according to NSDL.

The massive FPI withdrawal, coupled with other factors, made India's stock markets range bound and it went back toward levels seen a year ago. Nifty 50 had risen by 7.5 per cent year-to-date till June 30, 2026. However, this year it slipped by 8.7 per cent in the same duration. Also, Nifty 50 was at 25,517.05 on June 30, 2025, which has fallen to 23,865.75 a year later on June 30, 2026

Altogether, what began as a distant conflict quickly translated into higher costs, currency pressures, and heightened volatility for India's economy and financial markets. This half-year scorecard paints a picture of an economy navigating a perfect storm.