Hormuz Reopened, Markets Perceive End to Geopolitical Tensions

Global Markets Breathe Sigh of Relief as Middle East Tensions Ease

The S&P 500 hit an all-time high this week, with the CBOE VIX, Wall Street's fear gauge, returning to pre-Middle East war levels. The MSCI All Country World Index was up 4.88 percent year to date as of April 17.

The recent developments in the Middle East have a significant impact on the global economy. The IMF chief had warned that even their most hopeful scenario involves a growth downgrade due to significant infrastructure damage, supply disruptions, losses of confidence, and other scarring effects. The IMF's April 2026 World Economic Outlook is less a forecast than an admission that the global economy is one bad headline away from a significantly worse outcome.

The Middle East conflict has already started to affect the global economy. The March WPI print shows a surge in crude petroleum and natural gas prices, which has moved up month-on-month inflation. Headline retail inflation still looks benign, but energy is not just another component; it is the system's transmission mechanism. It feeds into fertilizers, transport, manufacturing margins, and eventually, consumption.

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The shock is not yet broad-based, but it is seeping in. The subsidy hike will bring limited relief for the fertiliser sector, and April data show a weak start for the roads sector in FY27. However, S&P Global Ratings believes that India may grow 6.3 percent even if crude averages $130 in FY27.

India has resilience, but none of it insulates the country from an external shock driven by oil and geopolitics. If the Strait of Hormuz remains open, it changes everything. The IMF report on the World Economic Outlook has a scenario where conflicts de-escalate, supply chains normalise, and growth stabilises without inflation resurging. Markets are leaning closer to that scenario, but as TS Eliot said, "Between the idea and the reality, between the motion and the act, falls the Shadow."

Key Developments

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• The S&P 500 hit an all-time high this week.
• The CBOE VIX returned to pre-Middle East war levels.
• The MSCI All Country World Index was up 4.88 percent year to date as of April 17.
• The IMF's April 2026 World Economic Outlook is less a forecast than an admission that the global economy is one bad headline away from a significantly worse outcome.
• India may grow 6.3 percent even if crude averages $130 in FY27, according to S&P Global Ratings.