Mumbai, 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 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 yields and control currency volatility.
The report suggests 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, managing to keep it below the 92 mark. This intervention is considered crucial amid the current uncertainty.
The closure of the Strait of Hormuz has already affected the global energy market, as nearly 20% of the world’s crude oil trade passes through this route, resulting in rising oil prices. Currently, Brent crude is priced at $91.84 per barrel, while WTI is at $89.62 per barrel.
SBI Research indicates that a $10 increase in crude oil prices could raise India‘s current account deficit (CAD) by approximately 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 it occurs during the final phase of the Kondratieff wave, a theory of long-term economic cycles, which could have structural impacts 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 reliance on Russian energy may create new opportunities for America in Europe. Conversely, economic activities in most other regions may face increased pressure.
Amid rising market volatility, many central banks are increasing their gold reserves as a safe investment. Currently, gold constitutes about 17.6% of India’s foreign exchange reserves.
The report concludes that the conflict’s impact on India could manifest 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 due to measures like purchasing Russian crude oil and forward contracts.
In summary, the growing uncertainty in the Gulf region is likely to continue affecting oil prices, inflation expectations, and investor confidence in the near future. Therefore, policymakers and investors need to closely monitor the situation.