Will US action in Venezuela push oil lower—and become a tailwind for Indian markets?

The US operation in the South American nation should drive crude oil lower over time which should be positive for India, said Ashish Gupta, chief investment officer of Axis Mutual Fund. He added that he did not expect a knee-jerk reaction from markets at opening on Monday.

“In the past two to three years, markets have not reacted significantly to geopolitical events whether in Europe or West Asia and I don't expect one after the Venezuela takeover either. Rather, our markets will be guided by domestic fundamentals like earnings growth and fiscal prudence by the Centre," Gupta added.

On 3 January, the US reportedly carried out airstrikes on Caracas in the backdrop of heightened tensions in the Caribbean and its recent interdictions of vessels alleged to be carrying narcotics in Venezuelan waters. The White House has said the operation was aimed at dismantling narco-terrorist networks and halting weapons flows to anti-US forces, and claimed it resulted in the “capture" of Venezuelan president Nicolás Maduro.

Nilesh Shah, managing director at Kotak Mahindra Mutual Fund, said market volatility could increase, as it was “extremely difficult to gauge the secondary impact of the unprecedented event".

While Shah expects markets to break out in 2026 after nearly a year and a half of consolidation, supported by improved corporate earnings growth, he said investor expectations should be tempered to accept high single-digit to low double-digit returns—unlike the strong double-digit gains seen in the post-Covid period through September 2024.

Indian equities struck a positive note early in the new year, with the Nifty 50 scaling record highs on Friday, 2 January, amid optimism around December-quarter earnings and expectations of a pro-growth Union budget.

The Nifty 50 settled at 26,328.55, up 0.7%, while the Sensex ended 0.7% higher at 85,762.01, just shy of its all-time closing high of 85,836.12 recorded on 26 September.

Madan Sabnavis, chief economist at Bank of Baroda, believes oil prices could surge 5-10% in the immediate aftermath of the attack, triggering a “knee-jerk" negative reaction in markets.

However, his peer Sujan Hajra, chief economist and executive director at Anand Rathi Group, discounted the likelihood of any significant market movement stemming from the weekend event, with crude oil likely to trend lower over time.

Oil dynamics

Venezuela holds the world’s largest proven oil reserves at 303 billion barrels, compared with Saudi Arabia’s 267 billion barrels, according to data from OPEC.

Brent crude oil prices have declined sharply over the past year, falling more than 20% from $76-78 per barrel in January 2025 to $60-61 by the end of the year.

India imports around 85% of its annual crude oil consumption of 239 million metric tonnes, according to data from the Petroleum Planning & Analysis Cell (PPAC) under the ministry of petroleum and natural gas.

In FY25, India imported 243.2 million metric tonnes of crude oil, paying $137.2 billion for it, PPAC data show. A significant portion of this crude was processed and exported as petroleum products. In FY26, the country has imported 163.4 million metric tonnes of crude worth $80.9 billion up to November.

“There will be no direct impact for India, (as) we don't buy any crude from Venezuela due to US sanctions. Globally, there could be a movement in crude oil prices and a general increase in volatility despite Venezuela contributing just 1% to global crude supply. If the US manages to bring down crude oil prices by taking over Venezuela's production, it could benefit India as it imports more than 85% of its requirements," said Harshraj Aggarwal, executive vice president, institutional equity research, Yes Securities.

Despite the decline in crude prices last year, India’s benchmark Nifty 50 index fell 17% from a record high of 26,277.35 on 27 September 2024 to a low of 21,743.65 on 7 April last year, before recovering 21% to hit a fresh record high on Friday. This rebound was largely driven by ₹7.88 trillion of buying by domestic institutional investors, according to exchange data.

Although Indian equities recovered from their April 2025 lows, they underperformed emerging market peers such as China and South Korea, due to a slowdown in earnings growth and persistent selling by foreign portfolio investors (FPIs), who offloaded a record ₹2.4 trillion worth of equities in the cash market last year.

MSCI India delivered returns of 4.8% in dollar terms in the calendar year through November 2025, compared with gains of 33.04% for MSCI China and 78% for MSCI Korea over the same period, according to data from global index provider MSCI.

Earnings estimates raised

While consensus forecasts for FY26 and FY27 earnings for the top 200 well-covered companies by market capitalization were trimmed by 0.5% and 0.9%, respectively, following the June quarter results of FY26, estimates were raised by 0.6% and 0.4% after the September quarter results, according to LSEG Workspace data.

This implies earnings compounding at an annual growth rate of 13.3% over FY25-27, according to NSE data.

Gupta of Axis Mutual Fund also expects markets to receive a further boost from a recovery in earnings, supported by fiscal and monetary measures such as income tax and goods and services tax (GST) cuts by the government, as well as interest rate cuts by the Reserve Bank of India last year.

These expectations helped push the Nifty to a fresh record high of 26,340 on Friday, before it closed at 26,328.55. The index had first crossed its previous peak of 26,277.35, set on 27 September 2024, on 1 December 2025, but then remained range-bound around the 26,200 level for several weeks until the latest breakout.

Several market veterans, including Nirmal Jain, founder of the IIFL Group, and Mahesh Patil, chief investment officer at Aditya Birla Sun Life AMC, expect oil prices to fall gradually due to a potential increase in global supply if Venezuela’s production comes under US control. They believe this could strengthen the market breakout after a prolonged phase of consolidation.

“A gradual correction in oil could be a tailwind for markets which are slated to benefit from a slew of domestic factors like reduction in GST and income tax rates and benign interest rates," said IIFL's Jain, who expects India to play catch-up with or to outperform EMs after a year of underperformance.

Markets may trend higher

Heavy selling of weekly options between the 26,250 and 26,350 put levels on Friday, ahead of the Venezuela intervention, suggests markets could open on a positive note on Monday, according to data from the National Stock Exchange. Put options are typically sold when traders expect markets to rise or remain stable, allowing them to pocket premiums collected from the buyers.

The sale of the 26,350 put and call options each yielded ₹133 per share to traders (with 65 shares constituting one Nifty contract), implying a trading range of 26,217 to 26,483, with an upward bias.

Data for Tuesday’s options expiry show that traders sold 167 put options for every 100 call options sold, indicating heightened bullish sentiment.