The surging crude oil prices, driven by the ongoing political turmoil in the Middle East, is causing ripples in the financial world, with investors rushing to safe havens, causing the stock markets to slide.
Brent crude hit a 30-month high of $108.6 per barrel intra-day on Tuesday, and bullion surged, with silver closing at an all-time high of Rs 49,700 per kg and gold inching closer to the 21,00-mark at Rs 20,960 per ten grams in the Capital.
Indian markets have been trading weakly on account of high inflation and high interest rates.The Bombay Stock Exchange benchmark Sensex fell by 142 points, or 0.8%, to 18,296 on Tuesday, in line with global markets.
A rise in crude oil prices will directly affect inflation, which continues to be a big concern for the UPA government.
"There is pressure on commodity prices and it is a spike driven by the current events that may lead to a one more round of oil price hike in India," said Abheek Barua, chief economist at HDFC Bank.
"However this is a short-term episode and once some of these issues are resolved there could be a moderation in commodity prices."
Shares in aviation and oil marketing companies saw big falls on Tuesday, hit by the rise in crude oil prices.
Indian Oil fell 4.1% while HPCL and BPCL fell by 4.4% and 3.4% respectively. On the aviation front, SpiceJet share price fell 9.1% which Kingfisher Airlines stock dipped 4.4%.
Investors exited the market to flock to safe havens such as bullion.
"Whenever we have geopolitical problems, crude rallies and as a result of anxiety there is a rush for safe assets of precious metals and rise in gold and silver prices," said Sanjay Sinha, CEO, L&T Mutual Fund.
"If global currency remains stable the rally in precious metals will be limited."
Experts say if the Middle East unrest continues, stock markets may remain volatile, and money will flow into developed economies and into precious metals.