Israel imports around $5.5-6 billion of refined petroleum products from India, and so a disruption of this trade would put further pressure on the exchange rate and could lead to a further depreciation of the rupee to a range of Rs 83-84 to a dollar from the current range of Rs 82-83 over the past month.
The war between Israel and the terrorist group Hamas has once again raised the spectre of disrupted trade, high oil prices, and a slowing global economic recovery, even as the economic impact of the Russia-Ukraine conflict lingers.
If the war is resolved in a few days, then the impact on India will most likely only be felt in the stock market during this period. “An unforeseen escalation in the Middle East has rekindled pessimism in global markets,” Vinod Nair, head of research at Geojit Financial Services said. He added: “Moreover, the rapid surge in oil prices presents a significant threat to the global market, which is already dealing with elevated inflation and interest rates.”
India imports about 80 percent of its crude oil requirement, and so high and rising oil prices have a direct impact on the finances of not just the government but also of households, since high oil prices increase input costs across industries.
“Now we can use the $90 number (for oil prices) to be the threshold beyond which there is trouble for the world economy,” Madan Sabnavis, chief economist at the Bank of Baroda said in a note Monday morning. “India can get affected if the price remains high due to further supply disruptions.”
Iraq and Saudi Arabia are the second and third biggest suppliers of crude oil to India. Russia is the largest. While having the top three suppliers of oil to India either actively engaged in a war, or physically close to one, does increase uncertainty about the security of India’s oil supplies, any negative outcomes are still purely hypothetical.
The Bank of Baroda analysis says that, in the event that Iran joins the conflict, the trade disruptions could deepen further.
