After multiple false starts towards peace, the US and Iran agreed to shake hands and end the West Asia war that has rocked the world for over 100 days, sending waves of relief across markets, industries and policy circles. Yet, concerns remain about the deal's stability and longevity, given Israeli officials' opposition to a deal they say does not address their country's concerns.
Crude oil prices were the first to react to the news, falling around 5%. At 5:25PM on Monday, the Brent August contract was trading 4.95% lower at $83.01 per barrel. Similarly, the June contract of West Texas Intermediate fell 5.3% to $80.38.
Global markets cheered, with stocks in Japan and South Korea jumping over 5%, while the Shanghai Composite gained nearly 2%. Indian equities joined in, with the Nifty climbing 1%. The rupee strengthened, closing below the 95-mark at 94.7162 per dollar. Benchmark 10-year government bond yield fell four basis points to 6.87%, tracking declines in US Treasury yields and lower oil prices.
'Massive relief'
“This is a massive short-term relief,” said Dhiraj Relli, managing director and chief executive officer at HDFC Securities. Nilesh Shah, managing director of Kotak Mahindra AMC, said the deal de-risks a key vulnerability for India’s economy.
Out of India's annual oil imports of around $123 billion, 60-70% used to cross the Strait of Hormuz before the war. Cheaper oil augurs well for India, which imports about 90% of its oil requirement. Though a peace deal is positive for India, much will depend on the details, particularly on the Strait of Hormuz, said Pronab Sen, India's former chief statistician.
"If the opening comes with conditions or operational constraints, concerns over energy supplies and freight costs may persist. However, if normal shipping operations are fully restored, it could significantly ease pressure on the Indian economy through lower crude oil prices, reduced inflationary risks and a smaller import bill,” Sen said.
An increase of $1 per barrel raises India's annual import bill by about ₹18,000 crore.
The news could give the central bank's monetary policy committee (MPC) some breathing room as well. In June, the monetary policy committee noted uncertainties around the conflict and its duration. Governor Sanjay Malhotra had said the major risk is how long these disruptions continue and how they will impact prices. “The peace accord makes life easier for the MPC. It reduces uncertainty,” said Gaura Sen Gupta, chief economist at IDFC First Bank.
Slow recovery
However, a significant ease in energy supplies may take a considerable time period, may be months, given the impact on several oil and gas facilities.
Prashant Vasisht, senior vice-president and co-group head, corporate ratings, Icra said: "In case of a successful US-Iran deal and subsequent normalization of the vessel traffic through the Strait of Hormuz, crude oil and natural prices would ease. However, beyond the immediate price action, crude prices could take six months to one year to normalize to pre-war levels, given that almost 10-11 million barrels per day of production has been shut in West Asia besides which some facilities have suffered damages." Brent crude closed at $72.87 per barrel on 27 Friday, a day before the US launched Operation Epic Fury.
Madan Sabnavis, chief economist at Bank of Baroda agreed that it may take at least six months for West Asia to ramp up energy output. "Hence, while prices may not go up further, they would continue to be rangebound in the area of $80-90, rather than $90-100 barrel.” The International Energy Agency, in its oil market report for May, said demand could recover later this year if flows through the Strait gradually resume from the September quarter, though supply recovery is expected to lag.
The peace deal offers balm for India's fertilizer sector as it reopens the Strait, a critical route for shipments of urea, ammonia, sulphur and liquefied natural gas used in fertilizer production. India depends heavily on overseas supplies of fertilizers and feedstocks. Vasisht of Icra said that for the urea segment, imported LNG prices are expected to moderate once supplies from Qatar resume, which should bring down the cost of domestic production. At the peak of the conflict, fertilizer and raw material prices had shot up 40-100%.
Manufacturing push
The reprieve comes at a time when this year's southwest monsoon is expected to witness below-normal rains at 90% of the 50-year average.
Rajnish Gupta, partner, tax and economic policy group at EY India highlighted that beyond energy, the removal of supply chain disruptions will also give a meaningful fillip to manufacturing activity and export recovery to the West Asian region.
“At the same time, we are mindful that a series of steps still need to fall into place—normalization of trade routes, stabilization of global supply chains and sustained diplomatic momentum for these gains to fully materialize,” said Gupta.
The lifting of restrictions on vessel movement is expected to lower war-risk insurance premiums, vessel charter rates and fuel costs, all of which surged during the war. Exporters, too, stand to benefit as congestion eases and container movement normalizes after weeks of disruption that left thousands of containers stranded across ports and trans-shipment hubs.
Pharmaceuticals and the micro, small and medium enterprises (MSME) are also expected to witness some ease in cost and supply chain pressure, if the deal stays for a long term.
“We are closely monitoring the situation, and we need to give a two-to-three-month settling-down period to see how this will impact the industry at large,” said Namit Joshi, chairman of the Pharmaceuticals Export Promotion Council of India (Pharmexcil).
MSMEs accounting for 48-49% of India’s merchandise exports could benefit if shipping costs and delivery times stabilize, said Vinod Kumar, president of the India SME Forum. India's total merchandise exports in FY26 were about $442 billion.
Serious disruption
Welcoming the agreement, Prime Minister Narendra Modi said that India looks forward to deliberations on the remaining issues reaching a sustainable final agreement.
“I welcome the understanding reached between the United States and Iran on ending the conflict in West Asia, which has caused serious economic disruption across the world and led to loss of life in many countries. India hopes that the implementation of this understanding will help restore peace and stability in the region and ensure the freedom of navigation and commerce. We look forward to deliberations on the remaining issues reaching a sustainable final agreement,” he said in a post on X.
However, given Israel's targeting of Lebanon and its concern that the peace framework leaves Iran's missile programme, regional proxy networks and nuclear capabilities largely untouched, Ajay Srivastava, founder Global Trade Research Initiative (GTRI), said, “The disagreement highlights the fragility of the accord and raises questions about its long-term durability. For the agreement to succeed, Washington may need to restrain Israeli actions that could undermine the peace process."
Concerns over stability and longevity of the agreement came up after Itamar Ben-Gvir, Israeli minister of national security wrote on X: “Trump's agreement does not bind us. Israel is not subject to the United States, and we are an independent and sovereign nation.” He added that Israel is not partner to the agreement that does not ensure its security, and it does not bind Israel in any way.
Earlier in the day, Shehbaz Sherif, prime minister of Pakistan tweeted: “Following intensive talks, we are pleased to announce that the Peace Deal between the United States of America and Islamic Republic of Iran has been REACHED. Both sides have declared the immediate and permanent termination of military operations on all fronts, including in Lebanon."
US president Donald Trump wrote on Truth Social, “The Deal with the Islamic Republic of Iran is now complete. Congratulations to all! I hereby fully authorize the toll free opening of the Strait of Hormuz, and, simultaneously herewith, authorize the immediate removal of the United States Naval blockade. Ships of the World, start your engines. Let the oil flow!”
Under-recoveries
With oil prices easing over the last few days, the under-recovery in product sales at state-run oil marketing companies (OMC) has also come down. Speaking to reporters, Sujata Sharma, joint secretary in the ministry of petroleum and natural gas said that under-recovery on the sale of petrol is currently at ₹3 and that in diesel sales is at ₹27 per litre, significantly down from the March levels.
On the proposed peace deal, Sharma said: "If the issues get resolved there, it will be beneficial for everybody. Supplies will definitely improve." Replying to a question on any decision to roll back retail fuel prices due to ease in global prices she said that "it is too early" for any move on the retail front.
Further, an Indian liquefied natural gas (LNG) carrier, Disha, safely transited through the Strait of Hormuz on Monday, making it the first Indian-flagged LNG-carrying vessel to exit the war zone in over three months. A total of 10 Indian-flagged ships have crossed the Strait of Hormuz since the blockade was put into place in early March. Disha, owned by a Shipping Corp. of India-led consortium, is carrying 62,370 metric tonnes of LNG cargo. LNG is used in for piped natural gas for cooking, compressed natural gas for mobility and industrial and commercial usages.
As solvent costs spiked and maritime insurance rates shot up, Indian drug formulation units faced severe margin compression, forcing the commerce ministry to evaluate emergency import duty exemptions. Pharmaceutical export promotion bodies said the domestic industry will require a buffer period to clear backlogged inventory.
With inputs from Vijay C.Roy, Shayan Ghosh, Subhana Shaikh, Dipti Sharma, Dhirendra Kumar, Subhash Narayan and Priyanka Sharma