War and oil: How rising prices could ripple across economies
Mumbai: The ongoing conflict in West Asia is increasingly impacting global energy markets, with analysts warning of a sharp rise in crude oil prices if disruptions persist.
According to Kotak Securities, Brent crude, currently trading near USD 109 per barrel, could climb to as high as USD 130–140 if the conflict drags on.
Anindya Banerjee, Head of Research for Commodities and Currencies at Kotak Securities, noted that the situation remains highly sensitive to time. He emphasised that each passing week of continued disruption adds upward pressure on oil prices, particularly as supply constraints deepen.
The primary concern stems from disruptions in oil and gas supplies from the region, which accounts for roughly 8–10 per cent of global oil output and 15–20 per cent of gas supplies. With inventories tightening and spot prices trading at a significant premium over futures, the market is already showing signs of stress. Analysts warn that prolonged disruption could eventually lead to demand destruction, affecting broader economic activity.
For India, the implications are immediate. Higher crude prices are expected to push inflation upward, with headline consumer price inflation potentially crossing 5 per cent in the near term. Banerjee also indicated that if elevated prices persist for several months, core inflation could rise further, slowing economic growth from around 7 per cent to closer to 6 per cent or even 5.8 per cent.
The Indian rupee is also under pressure amid rising oil prices and global uncertainty. Despite stabilisation efforts by the Reserve Bank of India, the currency could weaken further, especially if energy prices remain elevated and geopolitical tensions continue to disrupt trade routes such as the Strait of Hormuz.
Globally, the risks are even more pronounced. The United States economy, already facing structural imbalances, could move closer to recession if the disruption continues for two to three months. Analysts point to rising recession probabilities and increasing volatility in financial markets as key warning signals.
However, there remains a possibility of relief if geopolitical tensions ease. A potential ceasefire lasting around 45 days could stabilise markets and bring Brent crude prices down to the USD 80–85 range. Until then, uncertainty is expected to dominate, with investors and policymakers closely monitoring developments in the region.
The coming weeks are seen as critical in determining the direction of oil prices and the broader global economic outlook, as markets react to both geopolitical developments and supply dynamics.
(With ANI inputs)