Decoding the impact of Israel-Hamas war on global and Indian economy
Israel-Hamas war on the world economy may take time to become apparent but it would worsen if it spread to the Middle East, notably Iran, a major oil producer and Hamas sponsor.
The global economy would be affected by rising oil prices near $90. Further 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.
Any retaliation against Tehran might harm ships passing through the Strait of Hormuz, which Iran has threatened to close. This will increase worldwide shipping and insurance expenses and already rising oil prices.
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.
The global economy faces high inflation again as crude oil prices rise. If oil prices stay high, the US, India, China, and other major nations that import oil may see substantial import inflation.
When oil prices rise, the cost of production for various industries and energy costs for businesses and households also surge, driving inflation higher.
High energy prices and new inflationary trends could undermine the efforts of central banks to bring inflation under control. This can see interest rates at an elevated level for a prolonged period.
What is the impact on the Indian economy?
India continues to enjoy relative macroeconomic stability at this moment but is vulnerable to one key risk — supply disruption in crude oil prices because of escalation in the
