Middle East Unrest To Fuel Oil Inflation For India

War will affect the oil importing countries in terms of foreign exchange outflows. India in the recent past has widened its sources for importing oil by getting it from Russia at competitive prices. However, any rise in oil prices at this juncture will affect India - M Narendra, former CMD, IOB

Mumbai: The fight against Hamas by Israel has been intensified recently with recent move by it in target killing and ground advance in Lebanon and Iran joining the fight against the Jewish state by missile attacks. The current situation is tense and it may lead to full-fledged war in Middle East, which may lead to global forces joining the either side in escalation of war.

Talking to Bizz Buzz, M Narendra, former Chairman and Managing Director, Indian Overseas Bank (IOB), said: “It is difficult to fully know the consequences of the ongoing disturbance and tension in the Middle East on the global economy. It is to be seen whether oil prices, which were so far in comfortable position, may rise, if so, it will affect the oil importing countries in terms of foreign exchange outflow and its impact on domestic commodity prices.”

India in the recent past has widened its sources for importing oil and we are able to get oil from Russia at competitive prices. However, this will be one of the risks in acceleration in oil prices which will affect India, he said.

The commodity prices, which were also softer on global markets, may go up temporarily, increasing the cost of imports. There may be impact on supply chains and shipping routes which will increase freight costs which can have impact on international trade. However, India has strong macro-economic fundamentals and highest forex reserves comfortable for more than 11 plus months imports which acts as cushion to absorb the temporary upheaval.

These rapidly increasing geopolitical ‘hotspots’ will definitely impact all numbers factored into budgets adversely.

MV Hariharan, ex-treasury head, SBI, said: “The sustained instabilities will extract higher costs for India, be it in education abroad, jobs and tourism too. Oil is always an ‘elephant in the room’. Banks can feel the pinch of their education loans coming under stress with students in no man’s land with the uncertainties which will get triggered by the political context in play.”

Employment avenues will dry up, further exacerbating the situation domestically for the most populous country in the world. Social disturbances can escalate and the disruption costs could escalate. Supply chain management too will feel the pinch, he said.

Following the attacks, US West Texas Intermediate (WTI) crude futures jumped to $78.09 per barrel. If the conflict worsens, we could see an even steeper hike in oil prices. And India could feel the pinch as it is heavily dependent on the Middle Eastern oil, and any disruption in supply could seriously mess with the country’s energy security. The cost of petrol and diesel could rise, and that’s never good news for everyday consumers or businesses.

India exports everything from machinery to pharmaceuticals, while Middle Eastern countries send oil, natural gas, and fertilizers to India. Bilateral trade between India and the region stands at a whopping $195 billion! But it’s not just about goods. Investments from the Middle East have flowed into Indian infrastructure, tech startups, and more. All these will be under stress if war escalates, say experts.