Oil surged toward $100 a barrel on Thursday, 23 July, after Yemen’s Houthi rebels claimed attacks on two Saudi tankers in the Red Sea, adding to pressure on Indian stocks, the rupee and government bonds.

Brent crude rose more than 4% to around $98 a barrel, its highest level since early June. West Texas Intermediate crude moved toward $90.

The latest jump has sharpened concerns in India, which imports most of the crude it consumes. Costlier oil raises the import bill, feeds into inflation, weighs on the rupee and eats into the margins of companies with heavy fuel or petroleum-related costs.

Indian equities fell for a fourth straight session. The NSE Nifty 50 declined 0.53% to 23,869.60, while the BSE Sensex dropped 0.47% to 76,391.39. Mid-cap and small-cap indices lost about 1% each.

The market had already suffered its steepest decline in two weeks on Wednesday as Brent moved above $95. Thursday’s rise brought the $100 mark into view and made the oil shock harder for investors to dismiss as a short-lived geopolitical spike.

The Houthis said they attacked the Saudi tankers Encelia and Layla with missiles and drones after the vessels allegedly violated a blockade imposed by the group.

Saudi authorities confirmed that the Encelia had been struck and caught fire at its bow. The vessel was secured and the crew was safe. The claim involving the Layla had not been independently confirmed.

The attacks have put fresh attention on Bab el-Mandeb, the narrow passage between Yemen and the Horn of Africa.

Traffic through the Strait of Hormuz, the main route for Gulf oil exports, has already been disrupted by the conflict between the US and Iran. Saudi Arabia can bypass Hormuz by moving crude through its east-west pipeline to the Red Sea port of Yanbu.

From there, tankers heading to India and the rest of Asia must sail through Bab el-Mandeb.

That route is now under threat as well.

Three tankers carrying Saudi crude turned around in the Red Sea earlier this week after Houthi warnings instead of continuing south past Yemen. More attacks could force vessels to remain in port, sail north through the Suez Canal or take the much longer route around southern Africa.

Any of those options would raise freight, fuel and insurance costs.

Rupee stays near record low

The rupee closed almost unchanged at 96.5725 to the dollar after probable intervention by the Reserve Bank of India (RBI) prevented a sharper fall. It remained close to its record low of 96.96, reached in May.

Higher crude prices increase demand for dollars from refiners and other importers. The strain becomes greater when the rupee weakens, since companies must then pay more in local currency for each barrel.

State-run banks were believed to have sold dollars on behalf of the RBI on Thursday.

The central bank has already used its reserves to curb volatility, selling a net $6.1 billion in the spot foreign-exchange market in May after net sales of $8.9 billion in April.

Such intervention can slow the fall. It cannot remove the pressure if oil remains high.

Expensive crude may also make foreign investors more cautious. The combination of higher inflation, slower growth and a weaker currency can reduce the appeal of both Indian equities and debt.

Bond yields rise

Government bonds also weakened as investors reassessed the outlook for inflation and interest rates. The yield on the benchmark 6.94% bond due in 2036 rose to 6.8180% in morning trade from 6.8012% on Wednesday. It briefly touched its highest level in a month.

Bond yields move in the opposite direction to prices.

Higher US Treasury yields added to the pressure, though oil remained the main domestic concern. A prolonged rise in crude would lift transport and manufacturing costs and eventually work its way through food distribution, packaging and consumer prices.

That would leave the RBI with less room to cut interest rates. Expectations of easier policy may fade if oil remains near current levels or moves higher.

Airlines and fuel retailers feel the strain

Airlines are among the most exposed because aviation turbine fuel is one of their largest expenses.

Paint, tyre, chemical, cement, logistics and consumer-goods companies also face higher costs, either through fuel, freight or petroleum-based raw materials.

IndiGo edged lower ahead of its quarterly results. Investors will be watching for signs of how fuel prices and regional airspace disruptions are affecting costs.

State-owned fuel retailers face a different problem. When international crude rises but domestic fuel prices do not keep pace, retail margins shrink. Hindustan Petroleum fell after reporting weak quarterly results, adding to concern over the sector’s ability to absorb another oil surge.

Upstream producers such as Oil and Natural Gas Corp. Ltd can benefit from higher crude prices. Even there, the gain may be reduced by government levies, domestic pricing rules or a broader market decline.

Reliance Industries Ltd fell about 1%. Its refining business can benefit from stronger processing margins, but its petrochemical operations face higher input costs when crude rises.

Banks are less directly exposed, though prolonged oil inflation can weaken consumption, lift borrowing costs and increase stress among fuel-intensive companies.

India faces a broader test

The immediate market question is whether Brent can hold near or above $100. A brief spike would be painful but manageable. A sustained disruption across both Hormuz and Bab el-Mandeb would be far more serious.

India would then face a wider trade deficit, greater pressure on the rupee and a harder inflation problem. The government could also be forced to choose between raising fuel prices, cutting taxes or compensating state-owned retailers.

The Houthi attacks have widened the risk. Until now, the main concern was disruption at the entrance to the Gulf. The danger has spread to the Red Sea route that Saudi Arabia relies on when Hormuz is constrained.