Global ripples of the West Asia crisis, triggered by the US-Israel attack in Iran and the latter’s retaliation, directly hit the stock markets in Mumbai and the Parliament in New Delhi on Monday.
The Congress-led Opposition, accusing PM Narendra Modi of “cowardice”, said the government hasn’t done enough to anticipate or address the domestic crisis, even as the PM visited Israel just a couple of days before US-Israel strikes began on February 28.
It also renewed its allegation that the trade deal agreement with the US, announced last month, was against India’s interests, especially as it dictated that India won’t buy oil from Russia anymore. That clause has been eased for now in light of an oil crisis; but the questions go wider, say analysts.
₹25 lakh crore wiped out
On Monday morning, the Indian stock markets experienced what analysts are calling its steepest slide in six years. The Bombay Stock Exchange’s index, the Sensex plummeted by over 3% (around 2,500 points), while the National Stock Exchange’s Nifty-50 also was in a similar position.
Since the strife began on February 29, the total market capitalisation of all companies listed on the BSE has fallen from ₹463.9 lakh crore to below ₹440 lakh crore. This meant a value loss of more than ₹25 lakh crore in investor wealth, an amount equivalent to roughly one-seventh of India’s annual GDP, HT has reported.
The crash is apparently driven by a “flight to safety”, wherein investors pull money out of risky emerging markets like India and move it into safer assets like gold or the US dollar.
The US-Iran conflict, meanwhile, has been widening, with attacks reported on oil depots, water desalination plants, and even missile counter-strikes and drone attacks inside the UAE, Bahrain, Qatar and Oman, countries where US military bases are located.
For India, this is not a distant war in terms of human involvement either. West Asia has nearly 1 crore Indian citizens living and working there. Moreover, the Gulf is a vital trade partner, with annual trade volumes reaching $200 billion.
External affairs minister S Jaishankar noted in his statement to Parliament that the region is the “key to our energy security”, supplying the bulk of India’s oil and gas.
Oil connection between India, Gulf and beyond
The most apparent factor that would hit the Indian economy is the price of crude oil rising due to the war. Brent crude has surged 20% to go past $120 per barrel, as of Monday.
India is generally vulnerable on this count because it imports more than 85-90% of its crude oil requirements; according to SBI Research, every $10 rise in the price of a barrel of oil has multiple effects.
It fuels inflation, and widens India’s trade deficit (CAD), meaning the gap between what the country spends on imports and what it earns from exports. And, if oil sustains a level between $120 and $130, India’s GDP growth could slow to 6%, down from the previous expectation of 7% for the upcoming fiscal year, the research said as reported by news agency ANI.
The International Monetary Fund (IMF) has, meanwhile, issued a global warning this week. IMF managing director Kristalina Georgieva said on Monday, “A 10% increase in crude oil prices, if it sustains throughout the year, can result in a 40-basis-point increase in global inflation”. A basis point is a financial unit of measurement equal to one-hundredth of a percentage point (meaning 0.01%). So, 40 basis points would mean 0.4%
“Think of the unthinkable and prepare for it,” Georgieva said in advice.
India’s oil supply calculus gets affected by the de facto closure of the Strait of Hormuz as Iran hits back at US-Israeli bases and squeezes the global economy. With roughly half of India’s imports transiting the strait, Delhi is in diversification mode. Oil Minister Hardeep Singh Puri has said “energy imports into the country are in full flow from all non-Hormuz routes” and that “India is in a comfortable position and there is no room for anxiety or speculation”.
Impact on households
Over the weekend, LPG prices went up in India by ₹60 for a domestic LPG cylinder (14.2 kg), bringing the price in Delhi to ₹913.
Congress MP and former minister Shashi Tharoor said, “Gas is being completely stopped from coming out of Qatar. Our factories do not have gas coming into India right now from that side… we are certainly suffering.”
This has led to some bizarre, though tragic, local consequences. In Pune, the municipal corporation was forced to temporarily close gas-based crematoriums because the conflict has disrupted the supply of propane and butane, the two main components of LPG.
Protests in Parliament: ‘Leadership, Not Silence’
Amid this, politics has been sharply divisive as the government allegedly avoids questions. The Opposition INDIA bloc, led by Rahul Gandhi and Mallikarjun Kharge, staged a massive protest both inside and outside the Houses on Monday.
The protesting MPs carried a large banner that read: “Gulf burning, oil shock. Indians stranded. India needs leadership — not silence“.
They accused the government of “cowardice” and demanded a full-fledged parliamentary discussion rather than just a statement, referring to the one made by foreign minister Jaishankar.
Leader of the Opposition in the Rajya Sabha, Mallikarjun Kharge said, “The conflict is not limited to West Asia; it has now impacted India’s energy security and image of the country. The result of this conflict will also impact our economic stability.”
Govt response: ‘National interest paramount’
Jaishankar, nonetheless, delivered a “suo moto statement” — a formal report given on one’s own initiative — detailing the government’s diplomatic efforts so far amid the crisis.
He said the Cabinet Committee on Security (CCS), chaired by Prime Minister Narendra Modi, met as early as March 1 to address the safety of Indians and the risks to economic activity.
He said in both Houses, amid a ruckus by the Opposition, that the government was “assessing the situation” for months and issued travel advisories as early as January. He said around 67,000 Indian nationals have already been repatriated from the conflict zone via 150 flights over the last three days.
Regarding the economic shock, he said, “Our national interest, including energy security and trade flows, will always be paramount… For us, the interests of the Indian consumer has and will always be the overriding priority.”
Who gets hit in the market?
Sectors that depend on oil, such as aviation, paints, chemicals, and tyres, are facing the most pressure. For instance, IndiGo airlines has seen its stock price drop by over 7% due to the surge in aviation fuel costs, HT noted in an earlier report.
But companies like Reliance Industries and Coal India have held their ground as investors rotate their money into energy-producing firms that might benefit from higher prices.
However, analysts from SBI Research warned of a “stagflationary dilemma”. Stagflation occurs when economic growth slows down while prices continue to rise (stagnation + inflation).
The rupee is already under pressure, as it breached the 92 mark against the US dollar on March 4, touching all-time lows since.
For now, it helps somewhat that the US has, for a month, removed its no-Russian-oil condition for a trade deal with India. This, however, has led to questions for the Modi government as Rahul Gandhi alleges it’s acting under “some kind of invisible pressure” and hurting India’s sovereign stance in global matters. The Opposition has also questioned his stance tilting towards Israel despite India’s age-old links with Iran.
