New Delhi, March 7: The ongoing conflict in the Gulf region, involving military bases linked to Israel, Iran, and the United States, could significantly impact the global economy. According to a report released by SBI Research on Saturday, if this conflict persists, it may lead to increased inflation, pressure on global recession, and heightened instability in financial markets.
However, the report notes that India’s domestic financial markets are currently supported by measures from the Reserve Bank of India (RBI). The RBI has intervened to stabilize government bond (G-Sec) yields and control currency volatility.
The report indicates that a prolonged conflict could also exert pressure on India’s macroeconomic indicators. It highlights that the RBI has successfully reduced excessive volatility in the rupee by intervening in the spot market, keeping it below the 92 level. This action is seen as crucial amid the current uncertainty.
According to the report, the closure of the Strait of Hormuz has affected the global energy market. Approximately 20% of the world’s crude oil trade passes through this route, leading to a surge in oil prices. Currently, Brent crude is priced at $91.84 per barrel, while WTI has reached $89.62 per barrel.
SBI Research states that a $10 increase in crude oil prices could raise the current account deficit (CAD) by about 36 basis points in the fiscal year 2027. If oil prices reach $130 per barrel, India’s GDP growth rate could drop to around 6%.
The report also analyzes the conflict from a historical perspective, suggesting that it occurs during the final phase of the Kondratieff wave, a theory of long-term economic cycles. This could have structural effects on the global economy.
Some countries may benefit from this conflict. For instance, the U.S. could gain from rising oil and gas prices, while reduced dependence on Russian energy could create new opportunities for the U.S. in Europe. However, economic activities in most other regions may face increased pressure.
The report mentions that amid rising market volatility, several central banks are increasing their gold reserves as a safe investment. Currently, gold constitutes about 17.6% of India’s foreign exchange reserves.
The conflict could impact India in various ways, including remittances from Gulf countries, crude oil imports, and trade with West Asian nations. However, risks related to supply may be somewhat mitigated by purchasing Russian crude oil and forward contracts.
Additionally, the report notes that Indian banks and private companies are also linked to sectors that could be affected by this conflict.
In conclusion, the report states that the growing uncertainty in the Gulf region will continue to influence oil prices, inflation expectations, and investor confidence in the near future. Therefore, policymakers and investors need to closely monitor this situation.
My name is Bhupendra Singh Chundawat. I am an experienced content writer with several years of expertise in the field. Currently, I contribute to Daily Kiran, creating engaging and informative content across a variety of categories including technology, health, travel, education, and automobiles. My goal is to deliver accurate, insightful, and captivating information through my words to help readers stay informed and empowered.
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