Oil Prices May Have Reached Low Point, Experts Caution Defense Sector Remains a Long-Term Opportunity

Global Economy Shows Resilience Amid Ongoing Energy Crisis

The recent developments suggest that the worst phase with respect to oil prices is likely behind us, unless there is a fresh geopolitical escalation, according to Pankaj Singh, the smallcase manager and Founder & Principal Researcher of SmartWealth.ai. Despite the ongoing energy crisis, the global economy has shown resilience, with oil prices currently ranging from $98-103 a barrel, significantly higher than the pre-conflict baseline of $72-82 a barrel.

The escalation of the Iran conflict in early 2026 saw a sharp increase in Brent crude prices to nearly $120 a barrel, but panic subsided as fears of major supply disruption eased, and OPEC spare capacity reassured markets. The Strait of Hormuz was not fully blocked, diplomatic negotiations reduced escalation concerns, and Russian oil exports continued. As a result, the geopolitical risk premium in oil prices declined, and the immediate shock has been absorbed reasonably well, indicating resilience in global oil supply chains and the broader economy.

Key Statistics

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The landed prices of imports in India rose sharply due to war-risk premiums, freight spikes, panic buying, and disruption fears around Middle East supplies. However, retail petrol and diesel prices in India remained largely stable throughout the conflict period because the government and oil marketing PSUs absorbed much of the shock. Recent developments suggest that the worst phase is likely behind us, unless there is a fresh geopolitical escalation.

India has managed the recent oil shock relatively well through a combination of excise reductions, import price shock absorption by oil marketing PSUs, and supply diversification. Consequently, even the markets have largely recovered toward pre-conflict levels. For instance, the Nifty 50 has recovered to the around 24,200 range from lows near around 22,250.

Indian Economy's Resilience

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To ensure future resilience, India's energy security requires larger strategic reserves, potentially moving toward 90-120 days of equivalent reserve capability over time. Further, greater diversification of procurement from Africa, Latin America, Central Asia, US LNG, and offshore equity oil assets will be necessary. Additionally, lower oil dependence through accelerated energy transition, including ethanol blending, renewables, and alternate energy sources such as green hydrogen, will be crucial.

The market is less bothered about West Asia tensions and focusing more on the US-Iran deal. There are two separate themes here, both with broader implications for the economy and markets. First, the global geopolitical conflict involving the US and Iran has a direct bearing on India's energy security and therefore significant economic implications. Second, national security concerns relating to Pakistan also need to be understood separately.

Market Expectations

Rate cuts by the Federal Reserve in 2026 now appear unlikely unless the US economy weakens materially. Markets increasingly expect a prolonged pause, with even a small possibility of hikes if inflation worsens further. The RBI is also likely to remain cautious because India is highly exposed to oil inflation and rupee weakness. A prolonged pause appears more likely, although a symbolic late-year cut remains possible if oil prices cool materially and global conditions improve.

Pharma and consumption may provide relative stability amid volatility and shifting macro trends. These continue to be viewed as defensive sectors during uncertain periods. Defense remains a key long-term priority, especially given the increasingly volatile and interconnected nature of geopolitical conflicts. This theme could remain relevant for the next decade. Energy - both upstream and downstream across oil, gas, and thermal PSUs - may also present selective opportunities, though the sector requires a nimble and highly selective approach.