Indian sovereign bonds came under selling pressure at the start of the week after a sudden escalation of conflict in West Asia pushed global crude prices sharply higher, reviving concerns over imported inflation and fiscal strain. The benchmark 10-year government bond yield climbed to 6.6833% on March 2, up from 6.6601% in the previous session, marking a rise of about 2 basis points. Since bond prices and yields move inversely, the increase indicates investors were offloading government securities amid rising macro uncertainty.

The trigger was a dramatic geopolitical development over the weekend, when the United States and Israel reportedly carried out coordinated military strikes on Iran, resulting in the death of Supreme Leader Ayatollah Ali Khamenei. Iran’s retaliatory actions against US and Israeli assets have heightened fears of a broader regional conflict, injecting volatility across global financial markets.

For India, the most immediate transmission channel of such geopolitical shocks is energy. Crude oil prices surged to as high as $82 per barrel during early trading before easing to around $76 per barrel, still significantly elevated relative to recent averages. The Strait of Hormuz a narrow maritime chokepoint through which roughly 40% of India’s oil imports pass is now at the center of market anxiety. Any disruption to traffic through this route would have direct implications for India’s energy security, trade balance, and inflation trajectory.

Bond markets typically react swiftly to oil shocks because of their inflationary consequences. Higher crude prices translate into costlier fuel, transport, and input prices across the economy, which eventually feed into consumer inflation. For policymakers, this complicates the interest-rate outlook. If inflation expectations rise, central banks are less likely to cut rates and may even maintain tighter monetary conditions for longer.