Current Israel-Iran Conflict Unlikely to Affect Indian Macro Economy

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Disclaimer: The following article discusses the potential impact of the Israel-Iran conflict on India's macroeconomy. Readers are advised that predictions regarding economic outcomes are subject to uncertainties and may change based on evolving geopolitical dynamics.

Israel-Iran Tensions: Indian Macro Economy Unlikely to Be Impacted, But Uncertainty Looms


As tensions between Iran and Israel escalate, Indian markets brace for potential volatility in the coming week. While the conflict could drive crude oil prices above $100 per barrel, Indian economists suggest that India may be able to manage within that price range. "Our ability to absorb higher oil prices is relatively robust," states an economist from a global research firm.




There is cautious optimism that the conflict may not escalate further, with reports suggesting President Biden's intervention to prevent further tensions. "Seems like the storm has passed," remarks a geopolitical economic expert, indicating a reduced likelihood of further escalation.

Potential Impact on India


India, heavily reliant on imported crude oil, faces vulnerability to global price fluctuations. If the conflict persists and disrupts oil supplies from the Middle East, it could lead to higher crude oil prices. This, in turn, may impact India's economy through increased inflation and a higher current account deficit.

The extent of inflationary pressure will depend on the degree to which higher oil prices are passed on to consumers. Prolonged high prices could result in elevated inflation and reduced profitability due to low demand.

While India's current inflation trend is downward and the current account deficit remains manageable, sustained conflict could alter this scenario. Continued pressure on inflation and the current account deficit may slow economic growth and delay monetary easing measures.

Even with oil prices reaching $90 per barrel, losses incurred by Oil Marketing Companies are expected to be minimal, with no strong rationale for immediate pump price hikes. India's inflation position is relatively stable, with recent data showing a ten-month low in headline retail inflation. However, the Central Bank has acknowledged potential risks from rising crude oil prices and geopolitical tensions in its recent communication.

As of April 13, Brent crude settled at $90 per barrel, while US West Texas Intermediate crude futures settled at $85.66 per barrel.

In conclusion, while India's macroeconomic fundamentals appear resilient for now, ongoing geopolitical tensions highlight the importance of monitoring the situation closely for potential economic impacts.









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