Rupee volatility, forwards unruffled by Middle East flare up

MUMBAI, June 23 (Reuters) - Expectations of rupee volatility and the cost of hedging against the currency's decline had a muted reaction to worries over a deepening of the conflict in the Middle East after the U.S. struck Iran's nuclear sites over the weekend.
The reaction across global markets was relatively muted as investors kept their attention on potential retaliation by Iran. The Indian rupee declined 0.2% on the day to 86.8025 per U.S. dollar, tracking weakness in Asian peers.
The currency's 1-month implied volatility, a gauge of future expectations, nudged slightly higher but was hovering near its average over the last two months, signalling that market participants were not yet pricing in the risk of outsized swings.
Markets are wagering that "risk of further escalation seems low", a trader at a large private bank said, pointing out to the quick cooling of crude oil prices after an initial jump.
Brent crude oil futures rose to a peak of $81.4 per barrel but pared gains to quote up 1.7% at $78.3 per barrel.
Dollar-rupee forward premiums, too, reflected limited concern about a sharp depreciation of the rupee. The 1-month forward premium was nearly flat at 11.25 paisa. Far forward premiums also showed a contained reaction.
However, as a large oil-importing nation, India remains vulnerable to risks from sharp spikes in oil prices, MUFG said in a note.
"We would likely revise our USD/INR forecast profile higher if geopolitical risks remain elevated moving forward. Nonetheless, given the weakness already seen in INR, the balance of risks for the currency could be more two-sided."
Dampened risk appetite also weighed on Asian currencies and equities across the board.
India's benchmark equity indexes, the BSE Sensex (.BSESN), opens new tab and Nifty (.NSEI), opens new tab, fell about 0.8% each. The Korean won led losses among Asia FX with a 0.9% decline.

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The Guardian

12 minutes ago

• The Guardian

Airlines are changing plans as conflict escalates in the Middle East. How will it affect Australian passengers?

Passengers are facing delays, scheduling changes and even cancellations as airlines recalibrate their plans to avoid a large chunk of Middle Eastern airspace. Since Israel launched missiles at Iran on 13 June, airlines have been taking alternative routes in order to stay away from parts of the region including Iran, Iraq, Syria, Israel and parts of Jordan. The conflict is escalating as many Australians prepare for trips to Europe during the northern hemisphere summer. If you're one of them, how will the airline disruptions affect you? It all depends on the airline you plan to fly with, and which route your flight is taking from Australia to Europe. Aviation expert Prof Rico Merkert says airlines that stop over in the Middle East, such as Qatar, Emirates and Etihad, are likely to be affected. 'For sure there will be quite a bit of delays and possibly the odd cancellation,' Merkert, deputy director of the University of Sydney's Institute of Transport and Logistics Studies, says. 'Getting to the Middle East is probably still OK but once you get there it might be a bit hectic … with the potential for detours and delays. 'And, obviously, flying to Iran at the moment is not possible.' For example, Emirates typically flies from its home airport in Dubai into continental Europe using Iranian airspace, Merkert says, 'so they'll need to detour'. 'It's not just Iranian airspace, it's also Iraq, Syria and part of Jordan as well,' he says. 'Essentially, everything that's between Israel and Iran, because they do keep sending missiles to each other.' Emirates was contacted for comment, but did not respond by deadline. Qantas, which operates flights to London direct from Perth or via Singapore from Australia's east coast, has indicated it is monitoring the situation and says it will alter its flight paths if necessary but has not made changes yet. As Merkert points out in one example, a passenger on the daily QF1 flight from Sydney to London via Singapore would avoid Middle Eastern airspace, as those flights go over central Asia. However, the national carrier only flies from Australia to London. If you book with Qantas and want to go elsewhere in Europe, you're likely to be flying with Emirates, its international partner. Virgin only recently launched international flights, after entering into a codesharing agreement with Qatar, similar to the one between Qantas and Emirates. Qatar is headquartered in Doha, not far from Emirates' base in Dubai. As well as a partial ownership stake for Qatar, the alliance includes a so-called wet lease deal, whereby the Gulf carrier provides planes and crew to the Australian airline to operate weekly services to Doha under the Virgin brand. Virgin on Monday indicated its wet-leased service to Doha remained unaffected but has not ruled out scheduling changes. On Monday, a Qatar Airways spokesperson said the 'evolving situation in the region' would 'require some schedule changes'. The airline did not elaborate on what those changes involved but advised passengers to check its website for the latest information. 'We are continuously monitoring and assessing the situation, and reacting in real-time to ensure we operate under the safest conditions possible at all times,' the spokesperson said. 'We have some of the best people in the business working behind the scenes to keep our network strong and secure, and to ensure we remain the airline you can trust and rely on.' Etihad, another Gulf carrier, has suspended all flights between its base in Abu Dhabi and Tel Aviv until 15 July. 'This remains a highly dynamic situation, and further changes or disruption, including sudden airspace closures or operational impact, may occur at short notice,' a spokesperson said on Monday. 'Etihad continues to monitor developments closely in coordination with the relevant authorities and is taking all necessary precautions.' Merkert says he expects Turkish Airlines flights to face similar problems, as the carrier typically uses Iranian airspace. The airline, which flies from Sydney to Istanbul and then onwards into Europe – with a stopover in Malaysia – has plans to further expand into the Australian market. The carrier did not respond before deadline to a request for comment. Guardian Australia contacted more than a dozen airlines on Monday asking them what their plans were. Singapore Airlines had cancelled eight flights between Dubai and Singapore, 'following a security assessment of the geopolitical situation in the Middle East'. Thai Airways, which flies from Australia to Europe via Bangkok, said its services were not affected by the conflict. British Airways indicated its flights to Australia were operating as scheduled. While airlines have assured passengers they are making plans to avoid Iranian airspace and other danger zones, Merkert says there are options for people who would prefer not to fly over the Middle East at the moment, pointing to airlines that fly to Europe via Asia without stopping over in a Gulf country. 'My daughter is currently en route to Europe,' he says. 'But she flew with Singapore Airlines and so she flew via Singapore and from there to Frankfurt. That's a route that takes you about an hour north of Iran.' Merkert says another option could be flying to Europe via Japan. 'The problem at the moment though is the Ukrainian airspace is blocked too,' he says. 'It's probably safer, but it also takes additional time.'

Daily Mail​

an hour ago

• Daily Mail​

Supertankers U-turn in Strait of Hormuz as fear grips shipping industry after Iran threatens to shut down major route in wake of US airstrikes, pushing up oil prices

Two huge supertankers U-turned in the Strait of Hormuz yesterday amid fears Iran could disrupt the global oil trade by closing the passage in response to U.S. strikes. The Coswisdom Lake and South Loyalty, each capable of transporting about two million barrels of crude, entered the passage on Sunday before abruptly changing course and leaving, according to Bloomberg. It was unclear what caused the two empty ships to head south, away from the mouth of the Persian Gulf. Analysts have been closely monitoring the strait since the U.S. bombed three nuclear facilities in Iran earlier on Sunday. Iran's parliament was reported to have backed a move to close the strait late on Sunday, threatening around a fifth of all global oil movements. Iranian state television reported that the legislature had come to an agreement, but Supreme leader Ayatollah Khamenei would have to make the final decision, it said. The closure of the strait, a chokepoint between Iran and Oman, would threaten petroleum shipments from Persian Gulf countries, likely spiking prices. Oil prices jumped more than four percent early Monday, and Dutch and British wholesale gas prices rose today as markets braced for Iran's response. Analysts have warned that a decision to close the Strait would meaningfully impact global oil flows and be tantamount to a declaration of war. 'A move to close Hormuz would be an effective declaration of war against the Gulf states and the U.S.,' Eurasia senior analyst Gregory Brew told Axios. But whether Iran has the resource and will to suffocate its adversaries is unclear. 'Iran in its weakened state is unlikely to seek escalation of that kind at this time,' he added. Chris Weston at Pepperstone said Iran would be able to inflict economic damage on the world without taking the 'extreme route' of trying to close the Strait of Hormuz. 'By planting enough belief that they could disrupt this key logistical channel, maritime costs could rise to the point that it would have a significant impact on the supply of crude and gas,' he wrote. At the same time, 'while Trump's primary focus will be on the Middle East, headlines on trade negotiations could soon start to roll in and market anxieties could feasibly build'. Iran's armed forces nonetheless threatened on Monday to inflict 'serious, unpredictable consequences' on the U.S. in retaliation for its strikes on nuclear sites. 'This hostile act... will widen the scope of legitimate targets of the armed forces of the Islamic Republic of Iran and pave the way for the extension of war in the region,' said armed forces spokesman Ebrahim Zolfaghari on state television. Ali Akbar Velayati, an adviser to Iran's supreme leader Ayatollah Ali Khamenei, said bases used by US forces 'in the region or elsewhere' could be attacked. The US State Department issued a 'worldwide caution' for Americans on Sunday. China today warned against 'the spillover of war', urging the international community to do more to prevent the fighting from impacting the world's economy, noting the global importance of the Gulf maritime trade routes off the Iranian coast. The leaders of Britain, France and Germany have called on Iran 'not to take any further action that could destabilise the region'. At a UN Security Council emergency meeting Sunday, Secretary-General Antonio Guterres warned against 'descending into a rathole of retaliation after retaliation'. Asian markets traded lower today amid concerns of disruption to energy markets after the US air strikes 'obliterated' Iran's nuclear facilities on Saturday night. The dollar strengthened as traders assessed the weekend's events, with Iran threatening US bases in the Middle East as fears grow of an escalating conflict in the volatile region. Iran is the world's ninth-biggest oil-producing country, with output of about 3.3million barrels per day. It exports just under half of that amount and keeps the rest for domestic consumption. If Tehran decides to retaliate, observers say one of its options would be to close the strategic Strait of Hormuz - which carries 20 per cent of global oil output. Brent crude futures were up $1.52 or 1.97 per cent to $78.53 a barrel as of 6am UK time. US West Texas Intermediate crude advanced $1.51 or 2.04 per cent to $75.35. Both contracts jumped by more than 3 per cent earlier in the session to $81.40 and $78.40, respectively, touching five-month highs before giving up some gains. Economists at MUFG warned of 'high uncertainty of the outcomes and duration of this war', publishing a 'scenario analysis' of an oil price increase of $10 per barrel. 'An oil price shock would create a real negative impact on most Asian economies' as many are big net energy importers, they wrote, reflecting the market's downbeat mood. Tokyo's key Nikkei index was down 0.6 per cent at the break, with Hong Kong losing 0.4 per cent and Shanghai flat. Seoul fell 0.7 per cent and Sydney was 0.8 per cent lower. The dollar's value rose against other currencies but analysts questioned to what extent this would hold out. 'If the increase proves to be just a knee-jerk reaction to what is perceived as short-lived US involvement in the Middle-East conflict, the dollar's downward path is likely to resume,' said Sebastian Boyd, markets live blog strategist at Bloomberg. US Defense Secretary Pete Hegseth said on Sunday that the strikes had 'devastated the Iranian nuclear programme', though some officials cautioned that the extent of the damage was unclear.

The Independent

an hour ago

• The Independent

Oil prices soar after US attacks on Iran nuclear sites – why they could go higher

Oil prices have surged to their highest level in nearly six months, driven by escalating fears over global supply following joint US and Israeli military actions against Iran's nuclear facilities. Brent crude briefly climbed above 78 US dollars (£58.06) a barrel in early Monday trading before paring back slightly to stand at 77.6 dollars (£57.76). This significant increase comes in the wake of recent Israeli strikes on Iranian nuclear sites, compounded by a weekend aerial bombing campaign by the United States targeting three facilities within Iran. Investors are concerned about potential retaliatory actions from Tehran. Iran can disrupt oil shipments through the strategically vital Strait of Hormuz, a move which analysts fear could trigger a dramatic surge in crude prices and significantly impact global energy markets. Panmure Liberum experts estimated that Brent crude could peak at 100 dollars (£74.43) a barrel due to severe disruption of the crucial waterway route. Soaring oil prices, if the Strait of Hormuz is closed, could spark a 'major' spike in inflation while seeing growth stall, which could have a severe knock-on effect on global stock markets, according to Joachim Klement at Panmure Liberum. Closing the Strait of Hormuz could disrupt about a fifth of global oil and a fifth of global gas shipments, according to Panmure. Mr Klement said it could be worse than the oil and gas shock seen in 2022 after Russia's invasion of Ukraine and the subsequent sanctions against Russian oil and gas exports. Mr Klement said: 'If the Straits of Hormuz is shut, we expect a major stagflationary shock similar to 2022. 'In this case, a 10% to 20% correction seems likely and we could see a new bear market if the trade war escalates again in early July.' But he said if the Strait of Hormuz is disrupted but not closed, 'the inflation shock will be significant, but not enough to derail markets and the economies of the US, the UK and Eurozone for too long'. 'In this scenario, we expect an initial correction of stock markets of 5% to 10%. 'Whether this correction lasts longer and becomes deeper depends very much on how the trade war unfolds in the next couple of weeks.'