Soaring oil prices could deal a major blow to India which is dependent of imports. The unrest in West Asia and North Africa would also impact domestic companies that have operations in the region, or have sizeable orders from these countries

The ongoing political unrest in several parts of the Arab world and some North African countries is rocking global markets. The turmoil in West Asia has had a strong impact on commodities, particularly oil, the price of which has shot up to a 28-month high of more than $92 a barrel on supply concerns. Gold is at a seven-week high and gold futures have surpassed the $1,400 level.

Wall Street's key volatility measure spiked on Tuesday, as investors worried about the deteriorating situation in Libya. The CBOE volatility index (VIX) rose 27.8% to 20.99 in late afternoon trading. The index is up more than 31% in five days and is now at its highest level since late November.

However, according to analysts, the fear level is still below 30-the benchmark of investor worries. Year-to-date the index is up only about 18%. Wall Street saw a sharp sell-off on Tuesday with the Dow losing 174 points, its worst day since August.

Analysts feel that there could be further oil price volatility, perhaps even a minor oil shock. Oil, which is trading at a level not seen since October 2008, may remain elevated, as companies in Libya have shut at least 100,000 barrels per day (bpd) of production. Libya is a member of the OPEC and Africa's fourth largest oil producer after Nigeria, Algeria and Angola, with a production capacity of 1.8 million bpd and estimated reserves of 42 billion barrels.

Religare Capital Markets Ltd said in a research note that its Middle East and North Africa (MENA) strategist, Emad Mostaque, believes the unrest is unlikely to spread and disrupt oil supplies, but that the geopolitical risk premium will remain for some time to come. Ultimately, the turmoil will accelerate economic liberalisation and infrastructure spending throughout the region which should be a positive driver for more sustainable growth, rising employment and income levels, the brokerage said.

However, for India, which relies mostly on imports, this could be a major blow. Petrol prices have been hiked several times since June, although diesel has been left untouched so far. This will also affect some Indian companies which have operations in the Middle East and Africa.

"Most severely affected could be Punj Lloyd whose 33% of more than Rs256 billion order book comes from Libya. The order execution was already moving slowly and these incidences are likely to stall it further," GEPL Capital said in a flash note.

Other companies, which have operations in the Middle East and that may be affected are Voltas, IVRCL Infrastructures & Projects, Everest Kanto Cylinder, Bharat Heavy Electricals (BHEL) and Larsen & Toubro (L&T). Voltas has sizeable operations in Egypt and Libya. IVRCL, Everest Kanto, BHEL and L&T have orders from the Middle East, but these orders are not significant compared to the entire order book of the companies, the brokerage said.

Punj Lloyd shares fell 5.3% to Rs63.90 on the Bombay Stock Exchange (BSE) while the benchmark Sensex closed 117 points down (0.64%) at 18,178.3 points. Similarly, Voltas fell 3.5% to Rs163.80, while Everest Kanto declined 1.7% to Rs73.40, BHEL lost 1.4% to Rs1,046.70 and IVRCL was down 1.2% to Rs69.90. L&T declined 0.4% to Rs1,602.30.

With risk appetite slipping, investors across the globe are not really attempting to take any chances. The flight to safety may be the order of the day, but the worsening political unrest in West Asia and North Africa will keep investors nervous for some time longer.