India Moves To Shield Economy As Middle East Tensions Disrupt Energy And Trade

(MENAFN- KNN India) New Delhi, Mar 5 (KNN) India has stepped up efforts to safeguard its economy as the escalating Middle East conflict threatens energy supplies and the safety of millions of Indian workers in the region. The government has constituted a high-level panel to monitor risks and ensure smooth trade flows despite global disruptions.

RBI Intervenes to Stabilise Rupee

The Reserve Bank of India has stepped up surveillance of the currency market as volatility increased following the crisis. Market traders said the central bank intervened on Wednesday to stabilise the rupee after it fell to a record low against the US dollar.

Economists warn that India is among the more vulnerable Asian economies to the fallout of the US–Israel conflict with Iran, primarily due to its heavy dependence on energy imports, reported the Business Standard.

Oil Dependence Raises Economic Risks

India imports nearly 90 percent of its crude oil, about half from Persian Gulf nations. Disruptions in the Strait of Hormuz due to the conflict have raised concerns over prolonged supply constraints.

Global crude prices have already risen around 15 percent, which economists warn could impact India's current account balance, currency stability and inflation.

Indranil Pan, Chief Economist, Yes Bank, cautioned that if the conflict escalates or persists, it could significantly affect oil prices and worsen India's current account and balance of payments.

Strategic Reserves Offer Temporary Cushion

Officials said India currently holds about eight weeks of combined commercial and strategic crude oil and petroleum reserves, providing a temporary buffer against supply disruptions.

However, concerns are rising over cooking gas supplies as LPG imports from the Persian Gulf have reportedly stalled. India, the world's second-largest LPG importer, sources over 90 percent of its supply from the Middle East, and existing stocks may last around 30 days if disruptions continue.

Alternative Supply Options Being Explored

If disruptions to crude supplies persist for several months and reserves begin to decline, India may need to seek alternative sources of oil. One potential option would be increasing purchases of Russian crude, which had been reduced in recent months to align with US policy expectations.

Kabir Taneja, Executive Director, Observer Research Foundation's Middle East office, said India would have to explore alternative supply routes to meet its rapidly growing energy demand.

To address trade and logistics disruptions, the government has set up an inter-ministerial group to monitor global supply chains and coordinate responses among ministries, ports and customs authorities. Commerce and Industry Minister Piyush Goyal said the initiative will help ease procedures and support exporters affected by geopolitical disruptions.

Macroeconomic Impact Could Be Manageable

The central bank estimates that a 10 percent annualised rise in crude oil prices could increase inflation by about 30 basis points and reduce economic growth by roughly 15 basis points, assuming full pass-through to domestic prices. A weaker rupee could amplify these pressures.

Despite the risks, India's macroeconomic fundamentals remain relatively strong. Inflation is currently below the RBI's 4 percent target, while the current account deficit remains manageable. Foreign exchange reserves are close to a record USD 725 billion, providing a cushion against external shocks, and the economy continues to grow at over 7 percent annually.

(KNN Bureau)

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