Conflict in West Asia will test India’s economic resilience

THE escalating crisis in West Asia, triggered by the US-Israeli strikes on Iran and the latter’s retaliation, is causing economic tremors beyond the region. The stability of the energy market is at grave risk amid the threat to key global shipping routes. Oil and liquefied natural gas (LNG) shipments have already been disrupted due to attacks near the Strait of Hormuz, a strategic chokepoint for roughly one-fifth of the global oil supply. Ship insurers have pulled back war-risk coverage, freight costs are climbing and some ships are rerouting or halting operations. The immediate result has been a spike in crude prices, with Brent crude rising notably.

Higher crude prices will fuel inflationary pressures worldwide, challenging central banks that are already balancing inflation with growth. Industries reliant on petroleum and its derivatives — from transportation to chemicals and plastics — face rising input costs that can compress margins and slow down investment. Delayed deliveries will add to the woes of supply chains.

India imports 80-90 per cent of its crude oil, of which West Asia accounts for more than 40 per cent. Disruptions in Hormuz or even elevated geopolitical risk premiums could increase India’s oil import bill as well as the fiscal deficit. A rise of even $10 per barrel could hike import costs substantially. India’s trade corridors, especially for exports to the Gulf region, face rough weather. Electronics exports and other merchandise reliant on shipping through Hormuz and onward freight networks are at risk of delays, rising costs and lost opportunities. The Indian government is putting on a brave face, but a prolonged and deepening regional conflict would significantly aggravate the economic challenges. Navigating this storm will require agile policy responses, diversification of energy sources and stronger economic buffers to cushion against instability.