How West Asia Conflict Affects India’s Economy
Understanding the Economic Challenges
New Delhi: The recent conflict in West Asia could impact India’s economy. This happens as inflation was easing and businesses were adjusting to unpredictable tariffs.
Indirect Effects on India
India’s direct trade with Iran is small. However, the indirect effects could be big. The main worry is a possible rise in oil prices.
Oil Prices and Their Impact
Oil companies have not given the benefits of cheaper crude to consumers. They have kept the gains and shared some with the government. If the tension continues, it could affect oil retailers and the government. In areas like ATF, consumers might have to pay more due to higher crude prices.
Commodity Prices and Trade Routes
Some commodities like saffron could see price spikes. Iran is a major producer of saffron. But this is unlikely to greatly affect household budgets.
The indirect impact could be larger. Exporters are worried about:
- Disruption of sea routes
- Higher freight costs
- Changing crude prices
Ajay Sahay, director general at Fieo, said, “The main concern is the disruption of trade routes like the Red Sea and Suez Canal. These are vital for our exports to Europe, the US, Africa, and West Asia. Freight rates are likely to go up, increasing overall logistics costs. Uncertainty will affect demand.”
Rising Freight Rates
Freight rates have already gone up after a temporary truce between the US and China. Drewry’s WCI rose by 59% over the last four weeks. This was due to Trump’s pause on import tariffs, which led to more US-bound traffic.
Freight rates from Shanghai to New York rose by 2% to $7,285 per 40ft container in the past week. This is a 67% increase since May 15. Spot rates to Los Angeles increased by 1% in the past week and by 89% in the past four weeks.
Commodity Prices and Trade Deficit
Higher prices of commodities like gold could increase the import bill and widen the trade deficit. Gold is a popular investment for Indian households. However, it is still early days. Over the last few years, the world has managed to live with conflicts.
