Hormuz attacks lift oil above $106, chip stocks crater, and the rupee finds its footing

The Strait of Hormuz is about 33 kilometres wide at its narrowest point, and roughly a fifth of all oil traded by sea passes through it. That concentration is what makes attacks there so consequential: a supply shock, a sudden fall in how much oil can reach buyers, does not need to be large to move prices sharply. When the available supply falls and demand stays the same, the price rises until enough buyers drop out. That is the basic market mechanism, and it is why even reported attacks, before any confirmed disruption to flow, are enough to push Brent higher.

For India the number that matters is 85%: that is roughly the share of its crude oil that is imported. BCG's India chairman said this week that the current account deficit, the gap between what India earns from abroad and what it spends, is essentially a function of oil, gas and gold imports. At $106 a barrel, that deficit widens. A wider deficit means more dollars leaving India than entering, which puts downward pressure on the rupee. A weaker rupee then makes the next barrel of oil even more expensive in rupee terms, tightening the squeeze further. Whether the RBI's new forex measures can break that loop is the question the next few weeks will answer.

The sell-off is a story about speculative investment, money put into assets on the expectation of future profits rather than current earnings. Chip companies have been priced as if AI spending would grow at a very high rate for many years. When Broadcom's chief executive said many AI investors behave like casino gamblers, he was questioning that assumption publicly, from inside the industry. That kind of signal from a credible insider shifts what investors expect, and share prices move to reflect the new, lower expectation of future profits.

CXMT's announcement adds a separate pressure. South Korean firms like Samsung dominate global memory chip production partly because Chinese rivals have been blocked from buying the equipment needed to make advanced chips. If CXMT has found a way around that barrier, the competitive advantage narrows. For South Korea, chips are the single largest export category, so a 6.25% fall in the Kospi is not just a market number: it reflects a real threat to the country's export earnings. One month of share-price moves is not proof that the competitive landscape has shifted permanently, but the direction of travel is worth watching.

The RBI is caught between two problems that pull in opposite directions. A weaker rupee pushes up the price of imported oil, which feeds through into transport costs, food prices and eventually broader inflation, the general rise in the price level across the economy. That argues for keeping the rupee strong, which means either raising interest rates to attract foreign capital or intervening directly in the currency market by selling dollars. But raising rates too aggressively slows borrowing and investment, which hurts growth at a time when the global outlook is already uncertain.

Governor Malhotra's choice of words is itself a policy instrument. By insisting the restrictions are not capital controls, he is trying to keep foreign institutional investors, the large funds that move money in and out of Indian bonds and shares, from panicking. If they believe the exit door stays open, they are less likely to rush for it. The precedent that is relevant here is Malaysia in 1998, which did impose genuine capital controls during the Asian financial crisis and suffered a sharp drop in foreign investment for years afterwards. India is clearly trying to avoid that association. Whether the distinction holds under sustained oil-price pressure is the question the RBI cannot yet answer.

Front-running a tariff, shipping goods before a new import tax takes effect, is a well-documented trade behaviour. It creates a temporary surge in export volumes that flatters the headline number but tells you little about underlying demand. The 1930s offer a cautionary parallel: the Smoot-Hawley tariff in the US triggered a wave of retaliatory tariffs globally, and trade volumes collapsed not gradually but in a series of sharp steps as each new barrier was announced. The parallel is imperfect because today's supply chains are far more integrated, making full decoupling much more costly for both sides.

The EU angle is where this gets politically interesting. European manufacturers, particularly in steel, solar panels and electric vehicles, have been lobbying their governments to match US tariff levels on Chinese goods. The September export surge gives those lobbying efforts fresh ammunition: it looks like Chinese firms are deliberately flooding markets before barriers rise. But the EU's own consumers benefit from cheaper Chinese goods, and several member states with strong trade ties to China, Germany above all, resist escalation. Whether EU leaders can agree on a unified response, or whether the pressure fractures into a patchwork of national measures, is the decision that will shape European industrial policy for the next several years.