|
A widening conflict in the Middle East could trigger a fresh wave of global inflation if it spreads across supply chains, asset classes and jurisdictions, though India may remain relatively insulated compared with many economies, according to a report by SBI Research.
The report cautioned that escalating geopolitical tensions could create ripple effects across energy markets, trade and financial systems globally. "Should the raging conflict in Middle East proliferate asymmetrically across jurisdictions, asset classes and supply chains, the cumulative shock could trigger a new wave of inflation globally: India still a notable exception," the report said. The report added that while the immediate economic impact may be limited, disruptions to trade routes, supply chains and business sentiment could have broader implications for the global economy. "The immediate inflationary impact of widening conflict in the Middle East is likely to be limited. But potential trade and supply chain disruptions, weakening business sentiment and elevated uncertainty could have major consequences for the global economy," it said. For India, the report noted that the key channels of impact could be remittances from Gulf countries and crude oil imports. "The impact on India's economy may be a short-term impact on remittances and crude oil imports," the report said. India receives a significant share of its overseas remittances from the Gulf region, making oil price dynamics an important factor. "India's personal remittances increased 15% to $138 billion in FY25... GCC countries account for around 38% of the total remittances that India receives," the report noted. Energy security is another critical aspect, as India remains heavily dependent on imported crude. "India imports nearly 90% of its crude oil requirements," the report said, adding that a significant portion of global oil trade passes through the Strait of Hormuz, a key energy transit route. At the same time, the report highlighted that India has taken steps to diversify its crude sourcing in recent years. "India... has strategically shifted to import oil from more than 40 countries, more from Russia since 2022," it said, which helps reduce supply risks. The report also warned that higher oil prices could have broader macroeconomic consequences if the conflict prolongs. It is estimated that "for every ~$10 per barrel increase in crude oil prices may widen the CAD by 36 basis points and lead to a 35-40 basis point rise in inflation." Overall, the report suggested that while global markets could face renewed inflationary pressures if geopolitical tensions escalate further, India's diversified energy sourcing and policy responses may help cushion the impact compared with many other economies. (ANI)
|
