Brent crude futures surged 4.4 per cent to USD 69.16 per barrel as investors turned jittery on supply concerns.
The 30-share BSE index ended 162.03 points, or 0.39 per cent, lower at 41,464.61. Similarly, the broader NSE Nifty closed 55.55 points, or 0.45 per cent, down at 12,226.65.
Asian Paints was the top loser in the Sensex pack, dropping 2.16 per cent, followed by Axis Bank, Bajaj Auto, SBI, NTPC and Bajaj Finance.
On the other hand, Sun Pharma, TCS, HCL Tech, Infosys, Tech Mahindra and Bharti Airtel rose up to 2.08 per cent.
According to traders, investors moved away from risky assets after top Iranian commander Qasem Soleimani was killed in a US strike in Iraq.
World leaders reacted to the assassination with alarm, flagging concerns over a rise in regional tensions.
Bourses in Shanghai and Hong Kong ended in the red, while Seoul settled a tad higher.
Stock exchanges in Europe opened significantly lower.
On the currency front, the rupee depreciated 37 paise against the US dollar to 71.75 (intra-day). ANS ABM ABM