The recent drone attack by Iran, following a weekend of heightened tensions, has created another worry for policymakers in not just India but at a global level.
The specter of escalating conflict in West Asia looms over discussions on the global economy. It has ignited concerns among economic policymakers about potential fallout, as per a TOI report.
The most volatile component, oil, witnessed an immediate impact of these developments. On Friday saw global benchmark brent crude surging to $92.2 a barrel, the highest level since October, reflecting market apprehensions.
“An escalation of the conflict in West Asia can push up oil prices, which can have a detrimental effect on our twin deficits (fiscal deficit and current account deficit) and inflation, if prices stay high,” TOI quoted Dharmakirti Joshi, chief economist at ratings agency Crisil, as saying.
A key policymaker said that higher oil and gas prices will also have an impact on overall input costs and impact fertiliser prices, pushing up govt’s subsidy bill.
Furthermore, the spillover effects of regional tensions on shipping routes and supply chains add another layer of complexity. Attacks on ships and oil tankers have already inflated freight rates and disrupted container shipping to Europe and America.
Madan Sabnavis, chief economist at Bank of Baroda, underscores the broader ramifications, highlighting the potential for currency volatility and rising shipping costs. A stronger dollar and weaker rupee could inflate import costs, just as inflation has dipped below the 5 per cent mark, reported TOI.
Amidst this uncertainty, government officials caution that a prolonged disturbance in the region could reverberate across the global economy. However, the full extent of the impact remains uncertain, contingent upon the evolving nature of the conflict and its ramifications on international markets.
Source Name : Economic Times