Crude oil deficit to high inflation: How can the Israel-Hamas war impact Indian economy? — Explained
Also Read: From high inflation to import bill - the domino effect of rising crude oil prices on Indian economy With major oil producers Saudi Arabia and Russia announcing oil supply cuts of a combined 1.3 million barrels per day (mbpd) till the end of the year, the global economy already faces an oil market deficit. Now, with oil prices hovering above the $90 per barrel-mark, the escalation of the conflict towards other Middle Eastern oil producers is concerning and requires careful monitoring, especially given the global economy's 'higher for longer' interest rate scenario. The oil supply is unlikely to be threatened unless the issue expands to other nations in the region and becomes a proxy conflict between the US and Iran.
‘’Brent had crossed the $90 mark but then retreated. Now, we can use the $90 number to be the threshold beyond which there is trouble for the world economy,'' said Shantanu Bhargava, Managing Director, Head of Discretionary Investment Services, Waterfield Advisors. When oil prices rise, the cost of production for various industries and energy costs for businesses and households also surge, driving global inflation higher.
High energy prices and new inflationary trends could undermine the efforts of central banks to bring inflation under control. With this, central banks across the globe will continue hiking interest rates, which will slow down the global economic growth. The global economy faces high inflation again as crude oil prices rise.
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