How Is Ongoing Iran-Israel War Impacting Indian Economy?

Iran-Israel conflict

Even as the conflict between Israel and Iran is going on with the former vowing to retaliate after the later recently launched drones and missiles to it. There is perceptible increase in the geopolitical risk quotient, imparting higher uncertainity to the global economic outlook. Here are some potential impacts on the Indian Economy.

Interest rates higher

Higher geopolitical risks and the consequent uncertainity on the disinflation path will delay the decision of the US Federal Reserve and the Reserve Bank of India to cut rates, implying interest rates will remain higher for longer.

Crude price increase

Higher under-recoveries for the oil PSUs till the crude price increases are passed on to petrol, diesel, and LPG prices. The oil subsidy bill is likely to be above the interim budget for FY25.

Rise in oil derivatives

Prices for oil derivatives are likely to rise, impacting the operating margins for sectors like petrochemicals, speciality chemicals and paints.

Shipping cost increase

Shipping costs may rise further, pushing up costs of imported goods and thereby, wholesale inflation.

Merchandise exports

Merchandise exports to West Asia can slow down in the short term due to the escalation in conflict.