Stocks that will be affected if war breaks out between the US and Iran

Synopsis: Tensions between the US and Iran are rising, and oil prices have reached a two-month high. If the situation escalates into war, companies such as OMCs, tyre manufacturers, and paint and chemical firms could see pressure on their margins. On the other hand, defence stocks, gold, and gold loan companies might benefit.

Tensions between the US and Iran are escalating. Deadly protests have shaken Iran, leaving over 2,400 people dead so far. President Trump isn’t holding back; he’s threatened military action in support of the protesters. Iran responded, warning that if the US attacks, it will target US bases and Israel in retaliation. Not wanting to take risks, the US has begun withdrawing troops from Middle East bases, including those in Qatar.

Oil prices have surged to their highest point in two months. There’s concern about potential disruptions in the Strait of Hormuz, the vital passage where around a quarter of the world’s oil is transported. European and Israeli officials are discussing the possibility of US strikes on Iran in the next couple of days, despite Trump noting that the killings ceased after Iran halted executions. Meanwhile, airlines aren’t taking chances; they’ve started rerouting flights to steer clear of Iranian airspace.

Let’s examine several stocks from specific industries that could be affected if conditions deteriorate further. Some of these companies rely heavily on exports and international shipping, while others face higher expenses when oil prices fluctuate. Some gain an advantage when investors grow cautious and move their money into safer options.

Oil Marketing Companies (OMCs) 

If a war erupts between the US and Iran, India’s biggest worry is a sharp spike in crude oil prices. Oil Marketing Companies such as BPCL, HPCL, and IOC are the first to feel this shock. When crude becomes costlier, their fuel procurement costs surge immediately, but due to government controls, they can’t raise petrol and diesel prices in India fast enough. As a result, their profits get squeezed. 

Tyres & Lubricants 

The next industry that could take a hit are tyre and lubricants with manufacturers, such as JK Tyre and Castrol India. They’re affected because their raw materials are directly linked to crude. Synthetic rubber, petrochemicals, and base oils all become pricier. Even if demand for tyres and lubricants holds up, higher input costs eat into their margins.

Chemicals & Paints 

Crude oil isn’t just used for fuel; it’s also a crucial input for the chemical and paint industries. Many important chemicals are derived from petrochemicals, which all start with crude oil. Companies like Pidilite and Asian Paints depend heavily on these crude-based materials to manufacture adhesives, coatings, and paints. So when crude prices rise, their costs go up as well. This puts them in a tough spot. They can either absorb the higher costs and see their profits decrease, or they can try to pass the increase on to customers by raising prices. But higher prices can drive customers away. 

Defence

When geopolitical tensions rise, defence stocks typically surge. Investors anticipate that governments will increase spending on national security with larger budgets, quicker approvals, international orders and the whole package. That’s why stocks like BEL, HAL, Bharat Dynamics, and Mazagon Dock perform well during this period. There’s an expectation that these companies will secure more orders, deliver sooner, and benefit from growing optimism in the defence industry.

Gold & Gold Loans 

Whenever tensions rise, investors run to gold. It’s the classic haven. This benefits companies like Titan, as jewellery sales typically increase when gold buying goes up. Gold-backed loans also see a boost, such as Muthoot Finance, which gains here, as people use gold as collateral in uncertain times. Last quarter, outstanding gold loans hit record levels, helping NBFC margins stay stable.

Shrimp and Textile Exports

Shrimp exporters such as Avanti Feeds and Apex Frozen Foods depend a lot on the US market as it derives a larger chunk of their sales from that region, so if global tensions rise, they’re most likely to be affected. Issues with trade routes, higher shipping costs, or delays, any of these will impact their exports and profits. 

Textile exporters such as Kitex Garments, Gokaldas Exports, KPR Mill and others could face serious problems if the US–Iran conflict escalates, as these companies also depend on exports, mainly to the US and other nations. If the situation worsens, with higher freight costs, shipping delays, or reduced spending by US consumers, orders could decline, and profit margins may suffer.

While a strong dollar and a weaker rupee offer some relief, with uncertainty in the US and rising logistics expenses, it’s becoming more difficult for these companies to maintain steady earnings.

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