What Will Be The Impact Of Iran-Israel Conflict On Indian Economy? Expert Highlights 5 Potential Impact

On Saturday, Iran launched several drones and missiles towards Israel in retaliation for an alleged Israeli air strike on its consulate in Syria, resulting in the killing of three top Iranian generals.

New Delhi: The ongoing Iran-israel conflict has created not only led to tensions in the Middle East and the West Asian region, but the intensity of the military action between both the nations also seem to be increasing impact on global economies.

Says Suman Chowdhury, Chief Economist and Head – Research, Acuité Ratings & Research said, "With the drone and missile attacks on Israel by Iran, there is a perceptible increase in the geo-political risk quotient, imparting higher uncertainty to the global economic outlook. Although crude oil prices are yet to rise sharply beyond USD 90 pb, there is a significant likelihood that it will breach the USD 100 levels if the conflict intensifies further over West Asia."

Suman Chowdhury highlighted 5 potential impacts of the Iran-israel Conflict On Indian Economy

1. The higher geo-political risks and the consequent uncertainty on the disinflation path will delay the decision of the Fed and RBI to cut rates, implying interest rates will remain higher for longer.

2. Higher under-recoveries for the Oil PSUs till the crude price increases are passed through to petrol, diesel, and LPG prices. The oil subsidy bill is likely to be above the interim budget for FY25. If the price rise is sustained, there is also a likelihood of pass-through after the elections.

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

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

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

Chowdhury further added, "While we have a forecast of 6.7% and 5.0% for GDP growth and retail inflation in FY25, these can become vulnerable to revisions if the Iran - Israel conflict escalates further."