Just at the time when it did seem that the world economy was getting into some sort of nervous equilibrium against the background of the tariff threat held out by the USA, the war in West Asia has upset the applecart. Crude oil prices have started increasing sharply, with Brent going at $75/bbl and poised to go further, depending on the state of the war. In this context, it is worth examining how India can be affected, as the impressionist view is that there could be higher inflation and possible pressure on the budget.

The Israel-Iran war is more like the Israel-Hamas war and not the Russia-Ukraine war. The reason is that in the case of the Ukraine war, Russia was a major supplier of oil to the world and hence tilted the scales on the energy front, as several countries were dependent on oil and gas from Russia. In the case of Israel-Hamas, neither had much to do with energy resources, and the only fear was that other nations producing oil could join the war, which did not happen. However, in the present situation, Iran is a producer of oil with a share of around 4%. But, there is an embargo on buying anything formally from Iran, which has been imposed by the West. Hence, the oil exports from Iran are limited, and that too in a limited manner to China. Therefore, there is unlikely to be a demand-supply imbalance on account of this war.

This factor........

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