Every $10 hike in crude oil prices can reduce India's GDP by 0.5%, warns an expert. Rising tensions in the Middle East, a key supplier for India, are adding a 'war premium' to oil, threatening economic activity and currency stability.
Every USD 10 per barrel increase in global crude oil prices could reduce India's GDP growth by about 0.5 per cent and add pressure on economic activity, inflation and currency stability, given the country's heavy reliance on imported crude, Vandana Bharti, Research Head - Commodity, SMC Global Securities, told ANI.
"(Tensions in the gulf countries) It is a real threat to the Indian economy because we have reserves for about 25-30 days for emergency situations, but nearly half of our crude oil supply comes from the Middle East," Bharti told ANI in an exclusive interview, adding that "Every $10 hike in crude oil prices hurts India's GDP by about 0.5 per cent. We have already seen crude prices rise by around $10 to $15 recently, so the impact will eventually be reflected in economic activity and GDP figures."
Impact of Geopolitical Tensions on Oil Markets
The surge in oil prices comes amid rising tensions involving the United States, Israel and Iran in West Asia, particularly near the Strait of Hormuz -- a critical shipping route through which roughly 20-25 per cent of global oil shipments pass. Bharti said the conflict has increased uncertainty in energy markets and added a "war premium" to global crude prices.
"It is not simply about closing the Strait of Hormuz. The real issue is that insurance premiums and freight charges are rising, and shipments are being rerouted. All these factors add a war premium to crude oil prices and create uncertainty in the market," she said.
According to Bharti, energy infrastructure such as crude oil facilities, natural gas plants and LNG terminals are also under threat, which could further disrupt global energy supply chains. "They are targeting energy sites, whether crude oil facilities or LNG plants. There are also risks to seabed cables and other infrastructure. So the threat is not only to energy supply but also to broader global connectivity and trade," she said.
Recent Price Surge and Projections
Crude oil prices have already witnessed a sharp rise amid the tensions. Bharti noted that oil prices climbed from around USD 69 per barrel to nearly USD 78 within a week. "In just one week we have seen crude move from about $69 to $78 per barrel. If the tensions continue, prices could move towards $85 to $87 per barrel in the coming days," she said.
India's Vulnerability to Price Shocks
India remains particularly vulnerable to such price shocks due to its heavy reliance on energy imports from the region. Bharti noted that around half of India's crude oil supply comes from Middle Eastern countries. "India imports nearly 50 per cent of its crude oil from the Middle East, and many Indian refineries are designed to process Middle Eastern crude. So any disruption in that region directly impacts supply and pricing," she said.
India maintains strategic petroleum reserves that can help manage short-term disruptions. However, Bharti warned that even brief supply shocks could hurt Asian economies significantly.
She said that the country has reserves for around a month for emergency situations, but even a two-week disruption in supply can create major volatility in Asian markets. "We have already seen currency pressures, equity outflows and economic uncertainty across the region," she said.
Potential Mitigation Strategies
Bharti added that India could mitigate some of the risks by diversifying crude imports and strengthening energy trade partnerships. "Russia has been offering crude oil at discounted prices, and India may increase imports from Russia or other suppliers if required. Rerouting supply chains and renegotiating trade agreements can provide some cushion to the Indian economy," she said.
She also noted that members of the Organisation of the Petroleum Exporting Countries (OPEC) have indicated they may try to manage price spikes, though security concerns could limit immediate increases in supply.
Wider Economic Implications and Long-Term Solutions
Apart from crude oil, the conflict could also affect fertiliser supplies and agricultural input costs because energy prices are closely linked to fertiliser production. "This could increase the cost of the upcoming kharif crop, as fertilisers and other inputs may become more expensive," Bharti said.
At the same time, she said the crisis highlights the importance of accelerating investments in renewable energy. "Such geopolitical disruptions are an eye-opener. Governments may increasingly focus on renewable energy like solar power so that dependence on volatile fossil fuel supply routes can be reduced," she added. (ANI)
(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)