The EU hopes Tuesday to strike a deal towards implementing its nearly year-old trade pact with the United States -- with an increasingly impatient Donald Trump threatening steep new tariffs unless it is done by July 4.

The 27-nation bloc struck an accord with Washington last July setting levies on most European goods at 15 percent, but to the US president's frustration a final version of the text still needs nailing down on the EU side.
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"A deal is a deal," the US mission to the EU posted on X Monday, saying the bloc "must live up" to the agreement sealed in Turnberry, Scotland, between Trump and EU chief Ursula von der Leyen.

Negotiators from the EU's parliament and capitals will meet Tuesday night in Strasbourg to push for a compromise that would allow the bloc to meet Trump's deadline and hopefully turn the page on more than a year of transatlantic trade battles.

Short of that, Trump has warned the EU should expect "much higher" tariffs -- and has already vowed to raise duties on European cars and trucks from 15 to 25 percent.

The tariff blitz unleashed by Trump before the Turnberry accord, including hefty levies on steel, aluminium and car parts, jolted the bloc into cultivating trade ties around the world.

But the EU cannot afford to neglect the 1.6-trillion-euro ($1.9-trillion) relationship with the United States, its largest trade partner.

Cyprus, which holds the rotating presidency of the EU, said its goal "remains, the swift implementation of the EU-US joint statement".

To reach a compromise with member states, parliament is under pressure to renege on several amendments it added to the text in March which the Americans consider unacceptable.

The head of parliament's trade committee, Bernd Lange, struck an optimistic note, saying the sides had "already made a lot of progress".

"I hope we can reach a compromise, including new propositions," Lange said.

But first, he needs to hammer out a common stance between the parliament's different factions, which looked set to keep haggling until the last moment.

The EU parliament's conditional green light came after months of delay caused by Trump's designs on Greenland and a US Supreme Court ruling striking down many of the president's levies.

The assembly's largest force, the conservative European People's Party to which von der Leyen belongs, is now pushing hard to implement an accord it says is vital to ending a period of damaging uncertainty for EU businesses.

EPP lawmaker Zeljana Zovko told AFP she was "confident that we will get it done".

The EPP has firm support from the hard-right ECR party, whose shadow rapporteur on the file, Kris Van Dijck, also said he was "cautiously optimistic".

But several political groups had yet to make their position public as of Monday night, and it remained unclear how far the majority would compromise to get a deal.

Lawmaker Kathleen Van Brempt of the Socialists and Democrats, parliament's second-biggest group, said they would "engage constructively" but fight for safeguards "to guarantee stability, predictability and protection for European businesses and workers".

One bone of contention is a suspension clause toughened by parliament that would scrap favourable tariff conditions for US exporters, should the United States later breach the terms of the deal.

Another concerns so-called "sunrise" and "sunset" clauses under which the EU side of the accord would kick in once the United States makes fully good on its pledges, and would expire unless renewed in 2028.

Green lawmaker Anna Cavazzini said "the odds are good" but warned member states would need to "budge" on parliament's main priorities.

"These past weeks have shown time and again that Trump is not to be trusted, so the EU needs stronger tools at hand," she said.

India today hiked petrol and diesel prices by nearly ninety paise per litre in the second increase in fuel rates in less than a week after state-run oil firms ended a nearly four-year freeze on rate revisions.

The increase pushed petrol prices in New Delhi to Rs 98.64 per litre from Rs 97.77, while diesel rose to Rs 91.58 from Rs 90.67.

On 15 May, petrol and diesel prices were raised by Rs 3 per litre for the first time in more than four years, as surging global crude prices following the West Asia war forced state-run fuel retailers to pass on part of their mounting losses.

Fuel rates vary across Indian states due to differences in value-added tax.

Also on 15 May, compressed natural gas (CNG) prices were raised by Rs 2 per kg in cities. This was followed by a hike in CNG prices by Re 1 a kg on 17 May.

Global crude prices have surged more than 50 per cent since US-Israeli strikes on Iran on 28 February and Tehran's retaliation, disrupting flows through the Strait of Hormuz, a key artery for global oil shipments.

Despite the surge, retail fuel rates were kept frozen at two-year-old rates as part of what the Indian government said was an effort to shield consumers from higher global energy costs.

On Monday, Sujata Sharma, Joint Secretary in the Ministry of Petroleum and Natural Gas, stated that the 15 May hike had cut losses by a fourth and that oil companies were still incurring about Rs 750 crore a day in losses.

Prices have remained frozen since April 2022, except for a one-off reduction of Rs 2 a litre each on petrol and diesel in March 2024, just before Lok Sabha elections. Rates were last hiked in April 2022.

Petrol in Mumbai now costs Rs 107.59 a litre and diesel costs Rs 94.08 per litre. In Kolkata, petrol now costs Rs 109.70 per litre and diesel Rs 96.07, while in Chennai, prices increased to Rs 104.49 for petrol and Rs 96.11 for diesel.

India's retail inflation, measured by the Consumer Price Index (CPI), rose to 3.48 per cent in April this year from 3.40 per cent in March, while wholesale price inflation (WPI) surged to 8.3 per cent, a 42-month high, driven by a sharp rise in fuel and energy prices amid elevated global crude oil rates.

The US dollar rose on Tuesday as investors balanced cautious hopes ​for a Middle East peace deal against concerns that the Federal Reserve could raise rates to curb energy-driven inflation.

US ‌President Donald Trump said on Monday there was now a “very good chance” of reaching a deal limiting Iran’s nuclear program.

The dollar jumped in March after Iran’s effective closure of the Strait of Hormuz pushed oil prices higher, weighing on oil-dependent economies such as Japan and the euro area ​while increasing safe-haven demand for the greenback.

Oil prices fell 2 percent on Tuesday after Trump’s remarks.

“There are reasons why the ​dollar has not strengthened back to the levels seen in March,” Paul Mackel, global head of forex research at HSBC, said.

“Notably, global risk sentiment has recovered strongly; tension remains in USD OIS (overnight index swaps) markets which ​have stopped short of pricing an aggressive Fed hiking cycle; and monthly global growth momentum is still positive,” he added.

At the ​same time, investors are now pricing in almost a 48.5 percent chance that the Fed could raise rates in December, and a 98.8 percent chance it maintains current rates at its next meeting in June, according to the CME FedWatch tool.

“Even if the Fed moves to signal that it ​will adopt a neutral bias in June, it may not be enough to stabilize inflation expectations and long-term US Treasury yields,” ​said Thierry Wizman, Macquarie Group’s global foreign exchange and rates strategist.

“An opportunity to change the Fed’s rhetoric decidedly toward ‘hawkish’ will come with the ‌small ⁠flurry of Fed speeches, between now and June 6,” he added.

The US dollar index , which measures the greenback’s strength against a basket of six currencies, was up 0.2 percent at 99.18, after snapping a five-day winning streak on Monday as fears eased of an escalation in the war.

Gold prices fell on Tuesday, but ‌stayed above a 1-1/2-month low hit in the last session, as markets consolidated while awaiting further developments after US President Donald Trump paused a planned attack against Iran.

Spot gold fell ​0.5 percent to $4,544.17 per ounce by 0820 GMT.

US gold futures for June delivery ​lost 0.2 percent to $4,547.70.

Gold prices fell 2.4 percent on Friday in their biggest one-day decline since March 26 and extended losses on Monday to touch $4,479.54, the lowest ​level since March 30, as mounting inflation fears triggered a rout in the global ​bond market. Bullion recovered to close Monday slightly higher.

“It seems like an oscillation in this kind of inflation fear trade and a sort of digestion of the fireworks from Friday,” ​said Ilya Spivak, head of global macro at Tastylive, adding that markets are ​now awaiting broad sentiment markers such as the minutes of April’s FOMC meeting to be ‌released on Wednesday.

Bonds steadied following a steep selloff after Trump said on Monday he had paused a planned attack against Iran to allow for negotiations to take place on a deal to end the US-Israeli war, after Iran sent a new peace ​proposal to Washington.

Oil ​prices fell more ⁠than 2 percent, easing some inflation fears. Gold is considered a hedge against inflation, though higher interest rates tend to weigh ​on the non-yielding metal.

Kevin Warsh will be sworn in as ​Fed chair ⁠on Friday by Trump, a White House official said on Monday, putting the financier at the helm of the central bank as it grapples with intensifying inflation that ⁠may ​make it hard to push through the interest-rate ​cuts Trump desires.

Most Asian shares were lower in morning trade today (18 May), extending slides in global markets, as the impasse in the Middle East drove oil prices more than 2% higher.

Washington and Tehran agreed to a truce in April, but negotiations on ending the conflict have stalled and sporadic attacks in the region have continued.

US President Donald Trump issued a fresh warning to Iran yesterday, saying it had to move quickly towards a peace deal or "there won't be anything left of them".

The war has led to an effective blockade of the Strait of Hormuz, through which around 20% of global oil exports pass in peacetime.

The strait "remains meaningfully closed -- now approaching eleven weeks -- after the Trump-Xi summit in Beijing concluded without a breakthrough on reopening the waterway", MUFG's Michael Wan said today.

Tokyo shares lost 1% and Hong Kong was down 1.4%, while Shanghai was flat.

Sydney, Bangkok, Taipei, Singapore and Wellington also fell, with Jakarta tumbling 2.7%.

Seoul, which has renewed record highs in recent days thanks to the artificial intelligence stock boom, was trading up 1.2%.

"Global government yields rose sharply heading into the start of this week, as three forces collided: surging oil prices, fading hopes for a Strait of Hormuz resolution, and mounting fiscal concerns especially in the UK and US," Wan said.

However, last week's talks on trade between China and the United States have offered "a degree of relief for Asian markets", he added.

'Wave' of AI demand

Data showed today that China's consumer spending in April grew at the slowest pace in more than three years -- a stark sign of the challenges Beijing faces to reignite domestic activity.

In Tokyo, shares in memory chip maker Kioxia were not yet trading after a reported rush of buy orders following stellar quarterly results on Friday.

Kioxia, the world's third-largest producer of NAND flash memory chips -- used as storage in AI data centres -- has seen its stock soar nearly 300% over the past year.

The firm has forecast an eye-watering 1.3 trillion yen ($8.2 billion) in operating profit for April-June, saying it is "riding the large wave of AI demand, which has led to record high revenue and profits".

In South Korea, Samsung Electronics -- which has also profited massively from the AI memory chip boom -- resumed union talks in a bid to avoid a strike over bonus payments, due to start Thursday.

Later Monday, traders will have their eye on a meeting of G7 finance ministers and central bank chiefs that kicks off in Paris, with bond selloffs in the spotlight, analysts said.

Then all eyes will be on quarterly results from US chip titan Nvidia, set for Wednesday, which will be scrutinised as tech investors question whether huge spending on AI data centres is justified by potential returns.

Asian share markets were on the skids on Monday as fresh drone attacks in the Gulf shoved oil prices and bond yields higher, while the AI euphoria underpinning the tech bull run will be tested by earnings from Nvidia this week.

A drone strike caused a fire at a nuclear power plant in the United Arab Emirates, while Saudi Arabia reported intercepting three drones, as US President Donald Trump warned that Iran must act "fast" to reach a deal.

Meanwhile, the vital Strait of Hormuz remains closed to all but a trickle of shipping as Tehran tries to formalise its control of the waterway that during normal times carries 20% of the world's oil trade.

"The closure is draining global oil inventories fast," warned analysts at Capital Economics. "Inventories could reach critical levels by end-June, setting the stage for Brent at $130-140pb, if not higher."

"If the strait is closed through year-end and oil stays around $150pb into 2027, that would push inflation to near 10% in the UK and euro zone, send rates back to their recent peaks and lead to global recession."

Brent was trading up 1.9% at $111.34 a barrel, while US crude climbed 2.2% to $107.72 a barrel. Crucially, futures for September climbed above $100 and December hit a contract high as markets braced for protracted shortages.

G7 finance ministers are scheduled to gather in Paris on Monday to discuss the Strait of Hormuz and critical raw material supplies, even as geopolitical differences threaten to test the group's cohesion.

Global bond markets were hammered on Friday on concerns that energy costs would stay high and thus continue to drive inflation.

Yields on US 10-year notes hit a 15-month top of 4.631%, having already surged 23 basis points last week. Yields on 30-year bonds reached 5.159% after jumping 18 basis points on the week.

Japanese yields hit peaks not seen since 1996 as the government proposed issuing fresh debt to fund a planned extra budget to cushion the economic blow from the US-Israeli war on Iran.

Investors in turn feared central banks globally would have to tighten to head off an inflationary spiral and a hike from the Federal Reserve is now seen as a 50-50 chance this year.

Minutes of the Fed's last meeting are out on Wednesday and should show how much pressure there was on the committee for a shift to a neutral stance and away from an easing bias.

New Fed Chair Kevin Warsh will have a chance to air his views at the G7 meeting and analysts are keen to hear whether he still favours the rate cuts that Trump so desires.

Japan's Nikkei eased 0.9%, having fallen 2% last week from record highs. South Korean stocks dipped 0.3%, though Samsung Electronics gained after a court issued a partial injunction against a union strike.

MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.8%. Chinese blue chips lost 0.6%, as economic data disappointed. China's April retail sales edged up 0.2% when analysts had looked for growth of 2.0%, while industrial output rose a sluggish 4.1%.

AI, retail earnings to test the bull run

S&P 500 futures fell 0.6% and Nasdaq futures lost 0.7%. For Europe, EUROSTOXX 50 futures and DAX futures both fell 1.0%, while FTSE futures were flat.

While Wall Street has been supported by upbeat earnings, analysts at Citigroup noted that half of the boost to earnings came from one-time items like tariff add-backs and asset mark-ups. Both the gains in profits and the overall indexes were also tightly based.

"We identify 20 stocks that contributed the majority of index earnings upside," analyst Scott Chronert wrote in a note. "Forward guidance increases also show a similar narrow focus."

"Broadening is a necessary condition for meaningful index upside from here," he added. "This will require a better line of sight to the Iran conflict wind-down."

Rising yields also push up borrowing costs for the US government and home buyers, a negative for the budget deficit and housing markets. They also mean a higher discount for future company earnings, challenging stock valuations.

The all-important AI trade will be tested by earnings from Nvidia that are due on Wednesday, where expectations are sky-high for the world's most valuable company.

Nvidia shares are up 36% since a March low, while the Philadelphia SE semiconductor index has surged more than 60%, amid voracious demand for chips as tech companies spend massively to build AI-related infrastructure.

Also due this week are results from a host of retailers led by Walmart, which will provide an insight into how consumers are faring with high energy prices.

In forex markets, risk aversion has tended to benefit the greenback as the world's most liquid currency. The US is also a net energy exporter, giving it a relative advantage over Europe and much of Asia.

The euro sat at $1.1618 after losing 1.4% last week. The pound wallowed at $1.3311, having dived 2.3% last week as political instability added to already intense pressure on the gilt market.

The dollar held firm against the yen at 158.91, with only the threat of Japanese intervention preventing another speculative assault on the 160.00 chart barrier.

In commodity markets, gold idled at $4,544 an ounce, having drawn little support so far as a safe haven or as a hedge against inflation risks.

The US dollar-dominated global oil trading system is being tested by the Iran war and the closure of the Strait of Hormuz, as governments in major consuming nations turn to increasingly opaque deals with Tehran and Gulf producers to secure supplies.

Since the outbreak of the war on February 28, roughly a fifth of global oil supplies from the Gulf ​have been disrupted, dealing a tough blow to economies, particularly in Asia, which depends on the Middle East for about 60 percent of its imports.

With the Hormuz blockade now in its 13th week, ‌there are growing signs that major Asian importers are adapting to the new reality by striking direct arrangements with Gulf producers, often with Tehran’s consent, to allow vital flows of crude, chemicals and fertilizer through the Strait.

In recent days, several oil tankers have crossed Hormuz, frequently sailing with their tracking systems switched off to avoid detection, following direct contacts between leaders in the purchasing countries and Iran.

Last week, a Panama-flagged tanker carrying 2 million barrels of Kuwaiti and Emirati crude passed through the Strait en route to Japan following discussions between ​Prime Minister Sanae Takaichi and Iranian President Masoud Pezeshkian. Iran has also struck arrangements with China, Iraq and Pakistan to move oil and liquefied natural gas out of the Gulf.

The precise structure of these bilateral and ​trilateral deals remains largely opaque. But it is highly likely that many are being settled outside the traditional oil trading system, either through currencies other than the US dollar or through informal barter arrangements.

Regardless of whether these trades include explicit transit fees to Tehran - something Tokyo has denied - the pattern reinforces Iran’s de facto control over traffic through the critical waterway.

Iran seeks to enshrine ​this influence in any future settlement with Washington, a demand President Donald Trump has firmly rejected.

However the standoff is ultimately resolved, the current disruption is likely to leave a lasting imprint on oil trade patterns.

PERMANENT RISK

Crossing Hormuz is now likely ​to carry a persistent geopolitical risk premium. That will embed higher costs into Middle East crude, forcing importers to rethink supply security.

In turn, that may encourage more direct, government-backed deals with regional producers to clinch supplies, create pricing mechanisms that insulate buyers from volatility and help secure transit through Hormuz.

Signs of that shift are already emerging. Indian Prime Minister Narendra Modi visited the United Arab Emirates on Friday to discuss long-term supply agreements and expand strategic storage. The timing of the trip – in the middle of a regional war – ​underscores the urgency of New Delhi’s situation and may signal a broader turn toward bilateral energy diplomacy across Asia.

“In the current circumstances, there is every reason to expect China, India, Japan, South Korea, and other import-dependent countries ​to extend the network of bilateral relationships they already have with Gulf states - including a post-war regime in Iran - and with other oil and gas exporters around the world,” consultancy Dragoman said in a note on Friday.

PETRODOLLAR UNDER THREAT

These evolving trade ‌patterns add to the slow erosion of the dollar’s dominance in global oil trade.

Modi’s talks in Abu Dhabi followed a 2023 agreement between India and the UAE to settle bilateral trade in rupees and dirhams rather than dollars, part of a broader push by emerging economies to diversify their payment systems.

Today’s oil trading architecture was designed in the 1970s and 1980s to avoid such fragmentation. The creation of crude futures markets in New York and London brought transparency and liquidity to a system previously dominated by producer-set prices.

Crucially, it also entrenched the US dollar as the system’s core currency.

The dominance of the “petrodollar” gave Washington unparalleled leverage over global finance, enabling it to impose sanctions that effectively exclude countries, companies and ​individuals from the international trading system.

Over recent decades, the US has dramatically ​expanded the use of sanctions, targeting countries such as Iran, Venezuela, Russia and China in pursuit of geopolitical and economic objectives. Those measures drove the development of a vast oil trading network that bypassed the dollar and Western shipping.

The risk of falling foul of US sanctions prompted major emerging economies to explore alternative trading mechanisms. So far, those efforts have had only limited success: even today, just 10 percent ​to 20 percent of global oil trade is estimated to occur in non-dollar currencies.

But the shock of the Iran war and the partial shutdown of one of ​the world’s most important energy arteries, which has forced buyers to rethink their energy security strategies, could accelerate that shift.

With Asia accounting for over a third of global oil consumption and more than half of global imports, any move toward bilateral, state-driven trading relationships in this region would push the market toward a much more fragmented global energy trading system.

To be sure, the Middle East supply disruption has also reinforced the US as the world’s premier oil and gas producer, and Washington is likely to remain dominant in the global economy for decades to come. No single currency ​is expected to take the dollar’s place.

But the fallout from the Iran war could nevertheless lead to the fragmentation of oil pricing, ​reducing transparency and weakening Washington’s grip over the financial architecture that has underpinned the global oil trade for decades.

The Indian rupee fell to an all-time low on Monday, as stubbornly high energy prices due to the Iran war sent global bond yields soaring, denting risk appetite and deepening economic headwinds confronting the world's third-largest crude importer.

The rupee fell nearly 0.3% to 96.2275 per dollar, eclipsing its previous all-time low of 96.1350. Asia's worst-performing currency of 2026 has fallen to record lows for five straight sessions.

Traders said the losses would have been steeper if not for likely dollar-selling intervention by the Reserve Bank of India.

In addition to market interventions, Indian policymakers have deployed rare regulatory curbs to support the rupee including, most recently, restrictions on most silver imports.

The currency has declined 5.5% since the Iran war began.

"With chances of oil staying higher for longer, we revise our forecast for further INR weakness to 96/USD by mid-2026 and 98/USD by end-2026," analysts at BofA Global Research said in a note.

"Growth risks dampen prospects for any reversal in equity inflows while low carry, high hedging costs, concerns around wider fiscal deficit and rate-hikes would reduce scope for debt flows."

Overseas investors have net sold over $23.5 billion of local stocks and bonds since March.

Regional stocks slumped and bonds from Tokyo to New York extended losses as rising energy prices from the ongoing Middle East war fanned inflation fears.

Efforts to end the Iran war appeared to have stalled following a drone strike at a nuclear power plant in the United Arab Emirates.

The pressure reflected on Indian assets as well, with the 10-year bond yield up 6 basis points to 7.12% while the benchmark equity index Nifty 50 slumped over 1%.

India has been buying Russian ​oil irrespective of US ‌sanctions waivers, Sujata Sharma, a joint secretary in the petroleum ​ministry, said on ​Monday.

“Regarding (the) American waiver on Russia, I would like to ​emphasise that we have ​been purchasing from Russia earlier ... I mean before waiver also, during ​waiver also, and ​now also,” she told a media ‌briefing.

“It is basically the commercial sense which should be there for us to purchase ... ​There ​is no shortage of crude. Enough crude has ​been tied up ​repeatedly ... and this, whatever waiver or no waiver, it will not ​affect,” she ​said.

Sri Lanka slapped a 50 percent surcharge on customs duties on vehicles Saturday in a bid to discourage imports and ease currency pressure stemming from the Middle East conflict.

The increase in taxes comes as the local rupee has sharply depreciated since the start of US and Israeli attacks on Iran, which prompted retaliation by Tehran.

“Given the current pressure on foreign exchange, we want people to delay their imports (of vehicles) by three months,” Junior Finance Minister Anil Jayantha Fernando told reporters in Colombo.

Vehicle were charged a customs duty of 30 percent but several other taxes make the effective import tax on a car more than 100 percent.

Sri Lanka has increased energy prices by more than a third since the start of the Middle East war and has rationed diesel and petrol in a bid to reduce the import bill.

Official figures show that Sri Lanka’s rupee has depreciated by 4.5 percent against the dollar so far this year.

Central Bank Governor Nandalal Weerasinghe told a parliamentary panel last week that the rupee would continue to slide unless global oil prices fell or Sri Lanka slashed energy imports.

Sri Lanka is emerging from its worst economic meltdown in 2022, when it ran out of foreign exchange to finance even the most essential imports such as food, fuel and medicines.

Since then, the country has been under a $2.9 billion IMF bailout programme.

The UAE is to fast-track construction of a new oil pipeline bypassing the Strait of Hormuz, official media said on Friday, after the Middle East war crippled exports through the vital waterway.

The West-East Pipeline will double state oil giant ADNOC’s capacity through Fujairah port and is expected to become operational next year, the Abu Dhabi Media Office said.

Abu Dhabi Crown Prince Sheikh Khaled bin Mohamed bin Zayed Al Nahyan “directed ADNOC to accelerate delivery of the project”, the report said.

An existing, 360-kilometre (224 miles) pipeline from the Habshan oil fields to Fujairah has a capacity of 1.8 million barrels per day, according to the Port of Fujairah website.

The UAE, which made waves by quitting oil cartel OPEC at the start of this month, has plans to raise production capacity to five million barrels a day by next year.

Oil facilities in Fujairah have been repeatedly struck during the Middle East war. Three Indian nationals were wounded in the latest attack on May 4.

India is scrambling to salvage a sinking rupee as surging oil prices linked to the Middle East conflict threaten to disrupt the world’s fastest-growing major economy.

The currency has dropped more than five percent since the crisis erupted in February, extending losses from 2025 and making it Asia’s worst-performing major currency in 2026 so far.

It hit a record low of over 96 to the dollar on Friday, prompting officials to signal that halting further depreciation is a key macroeconomic priority.

India’s central bank has already poured billions of dollars to stabilise the currency, curbed speculative trading and offered a special credit line to oil importers to ease dollar demand.

Prime Minister Narendra Modi has also urged voluntary austerity measures to rein in dollar-guzzling imports, including cutting down on gold buying and foreign travel for a year.

But the pressure persists.

“The whole system has been disturbed,” said Dilip Parmar of stockbroker HDFC Securities, citing heavy foreign investor outflows, weaker growth prospects and elevated crude prices.

“That is the basic problem which you’re seeing replicated in the fall of the rupee,” he said, noting that it was ultimately “a function of demand and supply” with dollar demand being higher.

The rupee’s slide comes as India faces a widening current account deficit driven by costly energy imports.

The gap is likely to be over two percent of GDP this fiscal year, more than double last year’s level and potentially the widest since 2012–13, according to Bank of America Securities estimates.

WIDENING DEFICIT

At the same time, foreign investors have dumped more than $20 billion in Indian stocks since the start of the Mideast conflict, the fastest pace on record, while dollar inflows have slowed, opening the possibility of a balance-of-payments gap as large as $67–88 billion.

The 2027 fiscal year “will be our third year of a balance-of-payment deficit, which is certainly unusual,” economist Dhiraj Nim of ANZ Research told AFP.

This strain has weighed on the rupee, prompting the central bank to defend it by burning through foreign exchange reserves -- now at around $697 billion, down from over $720 billion before the Middle East war.

While still covering about 11 months of imports, the decline underscores the strain.

A weaker rupee is rippling through the domestic economy.

Manufacturers and food processors, many dependent on imported raw materials priced in dollars, are seeing costs surge.

Smaller firms often lack the ability to hedge currency risks.

In Kerala’s cashew industry, which mostly imports raw nuts from Africa, the impact has been acute.

“Imports have become far more expensive for the local market,” said Rajmohan Pillai, who runs a cashew firm, adding buyers can now afford only about 90 percent of last year’s volumes.

He estimates more than 80 percent of processing units have shut in recent years, with rupee volatility a contributing factor.

‘LAST STRAW’

India’s currency decline has also hit students looking to study abroad.

Education consultants say studying in the United States now costs more than one million rupees ($10,450) extra compared with a year ago.

“This is the last straw,” said Meghna Sen, a 17-year-old aspiring psychology student.

“Now we have to track (the rupee) movement to check how much we need for our grocery budgets.”

The depreciation has punctured India’s ambition to become the world’s third-largest economy.

Modi, who once criticised his predecessors over currency weakness, has seen India’s global economic ranking dented because GDP comparisons are measured in dollars.

The country has slipped behind the United Kingdom to the sixth place according to IMF data, largely due to the rupee’s fall.

Nomura analysts warn more drastic measures may be on the anvil.

These include possible fuel price hikes, tighter controls on overseas remittances and steps to attract dollar deposits from non-resident Indians -- a playbook used in past crises.

Still, economists caution that intervention can only smooth volatility, not reverse underlying pressures.

“Fundamental factors” remain to be resolved, Nim said, adding “I would not even rule out an interest rate hike which squarely targets future inflation”.

The Reserve Bank of India knows what its options are, he said.

“All that remains is to see what it decides to choose.”

G7 finance ministers gathering in Paris on Monday will try to find common ground on tackling global economic tensions and coordinating critical raw material supplies, even as geopolitical differences threaten to test the group's cohesion.

The two-day meeting follows a summit between US President Donald Trump and Chinese President Xi Jinping in Beijing that yielded few concrete economic breakthroughs, as tensions over Taiwan and trade simmered beneath a display of diplomatic cordiality.

At the core of the Paris agenda will be what French Finance Minister Roland Lescure described as deep-seated global economic imbalances that are fuelling trade friction and risk a turbulent unwinding in financial markets.

"The way the global economy has been developing for the past 10 years or so is clearly unsustainable," he said, pointing to a pattern in which China under-consumes, the United States over-consumes and Europe under-invests.

Update from US-China summit

Lescure, who will host the talks, said the G7 offered an opportunity for frank dialogue among allies at a time of widening disagreements with Washington.

"These discussions are not easy. I'm not going to tell you that we agree on everything, including, of course, first and foremost with our American friends," he told journalists ahead of the meeting.

Finance ministers will be looking for an update on US-China relations following the Trump-Xi summit and the latest US efforts to re-open the Strait of Hormuz, as the Trump administration allowed a sanctions waiver on Russian seaborne oil to lapse on Saturday.

Merely agreeing each side bears some responsibility for the trade and capital flow imbalances would be a success, French officials involved in preparations said, though the US side is likely to be reluctant.

Fallout from Mideast conflict

"I'd be shocked if they're going to sign on to the idea this is the US's fault in some way," said Philip Luck, director of the economics programme at Washington's Center for Strategic and International Studies.

Ministers are also due to discuss the economic fallout from the Mideast conflict and volatility on global bond markets, which are of particular concern to Japan.

Britain's finance ministry said Rachel Reeves would "press for coordinated action to limit inflation and supply chain pressures, and restore freedom of navigation through the Strait of Hormuz" at the meeting, and also reassert the government's desire to reduce trade barriers between Britain and the European Union.

Divisions within the G7 complicate efforts to project unity as ministers prepare for a 15-17 June leaders summit in the spa town of Evian.

Critical mineral dependence

A second priority will be critical minerals and rare earths, where G7 governments are trying to coordinate efforts to reduce reliance on China, which dominates supply chains vital for technologies such as electric vehicles, renewable energy and defence systems.

Lescure said the G7 would push for stronger coordination to monitor markets, anticipate disruptions and develop alternative supplies, including through joint projects spanning allied economies. The aim is to ensure that "no country can ever again have a monopoly" over such materials, he said.

G7 countries are trying to agree on a common toolbox of measures to stabilise markets and encourage domestic investment, possibly through price floors for producers, pooled purchases and also tariffs.

Nonetheless, the initiative is a long-term project that would yield little at the finance ministers' meeting, said Luck, who worked on the issue in the Biden administration.

"We are in the very early innings of figuring this out," he said. "I don't think there's agreement on a strategy even within the US government, let alone being able to articulate that in a convincing way to our partners in order to get them to sign on."

China and the United States agreed to continue implementing "all" agreements previously reached and to establish councils for trade and investment, Beijing's top diplomat said in a statement on Friday.

It comes after a two-day summit between Chinese President Xi Jinping and his US counterpart Donald Trump discussed a spate of thorny issues dividing the world's two largest economies from trade to the Middle East, as they met in Beijing where the US leader was feted with a temple tour and tea.
Trump touted "fantastic trade deals", announcing in interviews Chinese purchases of American soybeans and jets, but there have been no official announcements or details from either side.

After Trump's departure from China, Xi accepted an invitation from his US counterpart on Friday to visit the United States in autumn.

"The delegations of the two countries reached overall positive results, including continuing to implement all consensus reached in previous consultations (and) agreeing to establish a trade council and an investment council," Wang Yi said, according to a statement from the Chinese foreign ministry.

US Treasury Secretary Scott Bessent said in an interview with CNBC on Thursday the countries were in talks to establish a bilateral "board of trade" and "board of investment".

The two countries also agreed to "address each other's concerns regarding market access for agricultural products and promote expanding two-way trade within a framework of reciprocal tariff reductions", Wang said.

China and the US are in the middle of a year-long trade truce reached in October, where both sides agreed to slash tariffs on each other's goods that had exceeded 100 percent.

Iran will reopen its stock market on Tuesday after a suspension ‌during the conflict with the US and Israel, ​Iran's IRNA news agency ​cited a senior official ⁠as saying on Saturday.

"The ​suspension of stock market ​activities from the start of the war was aimed at ​protecting shareholders' assets, ​preventing panic-driven trading and allowing for ‌more ⁠transparent pricing conditions," said Hamid Yari, deputy supervisor at the Securities and ​Exchange ​Organisation.

"Now, ⁠with the reopening of the stock ​market, we will ​see ⁠the full resumption of all capital market sectors," ⁠he ​added.

European countries have entered negotiations with Iran's Revolutionary Guards navy to secure transit for their ships through the Strait of Hormuz, according to Iranian state media, following Tehran's decision to permit passage for dozens of vessels from East Asian nations that agreed to newly imposed Iranian shipping rules.

Iran has largely restricted shipping through the strategic waterway since the outbreak of war with the United States and Israel on 28 February, 2026. Although a fragile ceasefire has been in place since 8 April, the United States has continued a naval blockade on Iranian ports, says CNA.

The Strait of Hormuz, which handles roughly one-fifth of global oil and liquefied natural gas shipments during peacetime, remains a critical artery for global energy trade. The disruption has unsettled international markets and increased Tehran's leverage over maritime traffic in the region.

Iranian officials have said commercial traffic through the strait will not return to pre-war arrangements. Tehran has already begun collecting revenue from newly introduced tolls imposed on vessels using the route.

Ebrahim Azizi, head of the Iranian parliament's national security commission, said a "professional mechanism" for managing maritime traffic would be announced soon. According to Iranian officials, the system would apply only to commercial vessels and parties that "cooperate with Iran", and would involve charges for what Tehran described as "specialised services."

Iranian authorities also said the route would remain closed to operators involved in the "freedom project", a temporary US military operation established to guide stranded commercial ships through the strait.

Iranian state media confirmed that talks were underway with European countries regarding shipping access, but did not identify the nations involved.

Oil prices gained ​more than 3 percent on Friday, after comments by US President Donald Trump and Iran's foreign minister further dented hopes of a ‌deal to end ship attacks and seizures around the Strait of Hormuz.

Brent crude futures settled at $109.26 a barrel, up $3.54, or 3.35 percent. US West Texas Intermediate futures finished at $105.42 a barrel, up $4.25, or 4.2 percent.

Over the week, Brent has climbed 7.84 percent and WTI 10.48 percent on uncertainty over the shaky ceasefire in the Iran war.

"The tone between the US and Iran has once ​again become significantly more confrontational. While the ceasefire holds, hopes for a swift reopening of the Strait of Hormuz have faded," Commerzbank ​analysts said.

Iran has "no trust" in the United States and is interested in negotiating only if Washington is serious, Foreign ⁠Minister Abbas Araqchi said on Friday, adding that Iran is prepared to go back to fighting but also prepared for diplomatic solutions.

Trump said he ​is running out of patience with Iran and that he has agreed with Chinese President Xi Jinping that Iran cannot be allowed to have ​a nuclear weapon and must reopen the strait. About a fifth of the world's oil and liquefied natural gas normally passes through the strait, which is the gateway to the Gulf and main export route for countries such as Saudi Arabia, Iraq and Qatar.

Xi did not comment on his discussions with Trump about Iran, though China's foreign ​ministry issued a statement.

"This conflict, which should never have happened, has no reason to continue," the ministry said.

Among deals the market was looking for from ​the US-China summit, Trump said China wants to buy oil from the United States. Trump also said he could lift sanctions on Chinese companies that buy Iranian oil.

"Market ‌focus is ⁠back on the deadlock and a blockaded Strait of Hormuz, with a tail risk of renewed military escalation," said Vandana Hari, founder of oil market analysis provider Vanda Insights.

Iran's Revolutionary Guards said that 30 vessels had crossed the strait between Wednesday evening and Thursday, still far short of the 140 a day that was typical before the war, but a substantial increase, if confirmed.

"An increasing number of vessels are filtering through the strait ... although currently ​this has a more tangible impact ​on sentiment than on the actual ⁠oil balance," PVM analyst Tamas Varga said.

The strait's closure comes at a time when reserves are running thin.

"The world has consumed its oil safety net at a historic rate," Phil Flynn, senior analyst with Price Futures ​Group, said in a note. "While strategic releases and demand reduction have prevented immediate chaos, the margin for error ​is shrinking rapidly. A ⁠prolonged closure of the Strait of Hormuz points toward tighter physical markets, potential refined product shortages, and upward pressure on prices in the coming weeks and months."

Shipping analytics firm Kpler said on Thursday that 10 ships had sailed through the strait in the past 24 hours, compared with the five to seven ⁠that have ​crossed daily in recent weeks.

"Crude is trading higher on a combination of the Trump-Xi ​meeting doing little to bring us closer to a reopening of the Strait of Hormuz, and continued Ukrainian attacks on Russian refineries," Saxo Bank analyst Ole Hansen said.

Global oil supply will not meet total ‌demand this year as the Iran war wreaks havoc on Middle East oil production, the International Energy Agency said in its monthly oil market report on Wednesday.

The US and Israel’s war with Iran, subsequent damage to Iran and its Gulf neighbours’ oil infrastructure and the effective closure of the Strait of Hormuz ​have caused the largest oil supply crisis in history, sending oil prices skyrocketing.

“Our latest supply and demand estimates imply that the market will remain severely undersupplied through the end of 3Q26, even assuming the conflict ends by early June,” the Paris-based agency said, adding that the second-quarter deficit will be as stark as ​6 million bpd.

The IEA’s base-case forecast is for a gradual resumption of traffic through the strait from the third quarter onwards, it ​said, which could see the market return to a “modest surplus” by the fourth quarter, allowing depleted stocks to begin to rebuild.

Supply losses led to a ‌246 million barrel drawdown in global oil inventories in March and April, the IEA said, which could increase price volatility ahead of the peak summer demand period.

The 32-member IEA coordinated the largest-ever release of 400 million barrels of oil from strategic reserves in March in a bid to calm markets. It said around 164 million barrels of that total has already been released.

Overall global oil supply will fall by around ​3.9 million barrels per day ​across 2026 due to the ⁠war, the agency said, slashing its previous forecast, which had projected a 1.5 million bpd drop.

DEMAND ALSO UNDER PRESSURE FROM WAR

The IEA now sees demand falling by 420,000 bpd this year, compared to a ​previous forecast of an 80,000 bpd drop.

Consumption is also under pressure due to the war as ​price spikes lead ⁠to demand destruction and slower economic growth, it said.

Oil prices were little changed on Wednesday, with Brent futures trading at $106.93 at 0805 GMT, down 84 cents from the previous close and 1 cent higher than their level at 0759 GMT before the report was published.

The IEA said ⁠it will ​publish its first supply and demand forecasts for 2027 in its June report - ​a delay from April caused by the war - while its 2026 annual oil report will be delayed from June 17 with no new date yet set for its ​release.

Later on Wednesday, rival forecaster OPEC will publish its own monthly oil market report.

A US federal appeals court on Tuesday temporarily paused a ruling declaring President Donald Trump's global 10-percent tariffs illegal, granting a government request to suspend the decision pending appeal.

Trump imposed the temporary 10-percent duty in February, shortly after the Supreme Court struck down many of his global tariffs.

On May 7, the US Court of International Trade (CIT) blocked the tariffs from being implemented against two companies and the state of Washington. That decision was to take effect on Tuesday.

The US Court of Appeals for the Federal Circuit on Tuesday issued a brief order that included an administrative stay on the CIT's order, setting a schedule for both sides to file briefs on the matter.

In its motion for a stay, the Trump administration argued that the CIT's decision should be stayed pending the full run of government appeals -- up to the Supreme Court, if necessary.

It argued that if it issued refunds on the 10-percent global tariff, only to have an appeals court uphold its position, it would be unable to pursue economic redress.

"Plaintiffs, conversely, can be made whole through refunds, including interest, if the tariffs are ultimately held unlawful and refundable," the government said.

The court, however, only granted an administrative stay for the period while the court considers the motions for a stay pending appeal.

The Trump administration has said the new tariff was meant to deal with balance-of-payments deficits, citing Section 122 of the Trade Act of 1974.

The 10-percent global tariff under Section 122 is valid until late July unless extended by Congress.

The Trump administration has also been pursuing other means to impose tariffs to replace those struck down by the Supreme Court.

US authorities have opened investigations into dozens of trading partners over forced labor and overcapacity allegations -- which could lead to fresh tariffs or other action.

Trump's sector-specific tariffs on goods like steel, aluminum and autos remain unaffected by these legal challenges.

The Supreme Court's striking down of the majority of Trump's tariffs was a blow to the Republican president, after he made the levies a signature economic policy.

Since the decision, businesses have rushed for refunds.

US Customs and Border Protection (CBP) estimated in March that more than 330,000 importers could be eligible for refunds after the Supreme Court's decision.

The tariffs that were struck down earlier, imposed under the International Emergency Economic Powers Act (IEEPA), collected approximately $166 billion in duties and estimated deposits.

On Tuesday, CNBC reported that businesses had begun to receive refunds, in line with a CBP timeline released earlier this month.

CBP did not immediately respond to an AFP request for comment.

Foreign ministers from the BRICS group of nations, including Iran and Russia, meet in India on Thursday, with the Middle East conflict and related fuel crisis set to dominate discussions.

India, which holds the BRICS chair this year, is hosting the two-day gathering of foreign ministers from the expanded bloc, which now includes Iran and the United Arab Emirates -- countries at odds over the conflict launched by the United States and Israel on February 28.

India's foreign ministry said talks will focus on "global and regional issues of mutual interest", spokesman Randhir Jaiswal told reporters.

Iranian Foreign Minister Seyed Abbas Araghchi arrived in New Delhi late Wednesday, Iran's embassy in India said.

Russian Foreign Minister Sergey Lavrov is also attending. He met his Indian counterpart Subrahmanyam Jaishankar after arriving in New Delhi on Wednesday evening.

Jaishankar said in a statement that their discussions included "trade and investment, energy and connectivity" as well as "global and multilateral issues".

"Our political cooperation is even more valuable in an uncertain and volatile global environment," Jaishankar added.

Disruptions around Gulf shipping routes and the Strait of Hormuz continue to drive volatility in oil and gas markets, increasing pressure on energy-importing economies, including India.

The conflict involving Iran has added strain to India's economy, heavily reliant on Middle Eastern energy supplies and fertiliser imports, and has cast uncertainty over New Delhi's growth outlook.

BRICS was created in 2009 as a forum for major emerging economies seeking greater influence in institutions dominated by Western powers.

The grouping, originally comprising Brazil, Russia, India, China and South Africa, has since expanded, as members sought to boost the bloc's global political and economic influence.

It now includes Egypt, Ethiopia, Iran, Indonesia and the United Arab Emirates, although it remains unclear whether representatives from all member states will attend.

India will hold a leaders' summit later this year, and the foreign ministers will also meet with Prime Minister Narendra Modi, the foreign ministry said.

With deep divisions among some members, including over the Middle East war and criticism of Western powers, it was not clear whether a joint statement would be released at the meeting's end.

"We will let you know as things progress," India's foreign ministry spokesman Jaiswal added.