Thousands of soldiers are heading to the Middle East, an exercise in coercive diplomacy designed to increase leverage as Trump turns up the pressure for Iran to come to the negotiating table.

Teheran has declared it will not end the conflict unless Washington pays war reparations and affirms “exercise of sovereignty” over the Strait of Hormuz. A quick end to the war seems uncertain.

The clock is ticking on Trump’s tolerance. He may be eventually pushed inexorably into a showdown that makes it impossible for him to step back and accept a settlement regardless of the costs.

Iran’s president Masoud Pezeshkian has stuck a softer tone regarding talks about its nuclear programme on Tuesday. Despite that, even a peace deal is reached, the pains will not vanish overnight.

Shipping firms are unlikely to resume crossings through the strategic waterway until insurance premiums decline meaningfully and a credible multinational naval escort operation is in place.

According to the IEA, at least 40 critical Gulf energy sites have been “severely or very severely damaged" in the war. Some facilities, especially LNG plants, face repair timelines of multiple years.

Not only so, Russia’s energy facilities are under intense attack. In the near term, a bumpy road to development is here to stay for the economies featuring energy dependency and cost-of-living squeeze.

Goodbye India

Foreign investors are on track to pull a record amount of capital from Indian equities last month as the Iran war disrupts oil and gas supplies, weighing on economy and reigniting already-hot inflation.

The outflow likely surpasses the previous high of 940 billion rupees in October 2024, according to data from NSDL. The stock market has registered 10 consecutive years of gains.

Despite that, a weaker rupee eroded the return significantly. iShares India 50 ETF fell 3% last year, and another roughly 17% as of Tuesday in 2026, bring the fund back to the level last seen in 2023.

India is among the most vulnerable to higher oil prices as its net oil imports amount to 3.5% of GDP, according to S&P Global Market Intelligence. The retail inflation eased to a more than 5-year low in March.

The Modi’s government plans a modest improvement in its fiscal picture in the coming financial year, with reductions in the fiscal deficit and debt, while boosting manufacturing in a range of sectors.

Notably, the US and India are yet to finalise an interim trade deal. A major chokepoint is tariff reductions on US agricultural imports, as farmers play a crucial part in the general elections.

In its latest report, Nomura described the country as “one of the biggest” underweights. But analysts warn that attractive valuations alone may not lure foreign investors back soon.

Australia runs dry

Australia relies heavily on oil imports and runs low fuel reserves. Dozens of petrol stations across the land run out of fuel as distributors struggle to keep up with customers’ panic-buying.

The ASX 200 sees a wave of profit downgrades, with analysts suggesting a potential 20% drop in corporate profits, despite some sectors showing resilience. UBS has revised down its target to 8150 from 8850.

Consumer confidence in the country has plunged to the lowest level since records began in 1973, creating challenges for Treasurer Jim Chalmers to sell an ambitious tax reform plan in the May budget.

He warned the prospect of inflation peaking in the high 4s or even higher this year is very real if oil prices stay above $100 per barrel for the first half of the year. CPI rose 3.7% in February, largely driven by housing costs.

Australia had grappled with one of the biggest price pressures among advanced economies even before Khamenei’s death. On top of consumption woes, exports to Asia is facing heightened uncertainties.

Rising LNG revenue cannot fully offset the economic damage caused by oil shortages or price spikes. LNG is mostly sold under long-term contracts, while local firms and households pay global oil prices.

The ASX 200 lagged overseas peers as the tech sector makes up only 3% of the index. In these circumstances, investors are expected to keep the region off the radar in the foreseeable future.

Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.