‘Al Nakba’ also meaning catastrophe in Arabic – is a term that’s used to describe the first war that occurred immediately after the formation of Israel. The war resulted in the mass displacement of hundreds of Palestinians and resulted in the formation of three parts namely: The state of Israel, West Bank and the Gaza Strip. Since then, we’ve witnessed multiple wars, cease fires and peace treaties in this region. October 7, 2023 marked a dark day in history – one that is likely to have far reaching repercussions – not only for the Arab countries, but for the world. The Hamas attacks and Israel’s retaliation that is already underway will have an impact on the global economy.

Where does India stand?

The prices of Oil have a huge impact on India’s Balance of Payments, considering that we are net importers of Crude Oil. In fact India imports about 84% of its requirements for crude oil needs. This also makes it the third largest importer of crude oil in the world.

It’s also interesting to note that we import about 40% of crude from Russia and 43% from Middle East. In fact, our crude oil imports from within the Middle East largely come from Saudi Arabia and Iraq.

Does this mean that we will not face any impact of the rising oil process?

As the events around the war unfold, there could be a significant impact on oil supplies as well as prices – especially if an oil producing country like Iran joins the war in support of Hamas. Even though we don’t import oil from Iran, Supply routes could get hampered especially if the Persian Gulf gets impacted.

We are already witnessing some fluctuation in oil prices over the past few days as the rice per barrel touched the $94 mark in September 2023 before coming down to $85.80 per barrel in October 2023. However, the fluctuations are likely to remain a short term event, considering that the OPEC nations will work towards stabilizing the oil markets and ensure a regular supply of crude oil.

Globally, this could mean a rising inflation and heightened economic uncertainty as the war poses a whole new series of risks to an already fragile economy.

Here’s how it is likely to impact India:

• A rise in oil prices will likely have an impact on the country’s fiscal deficit (currently at INR 4.5 trillion) and drive our energy costs upwards.

• A weakening rupee could lead to higher levels of inflation and a reduction in the forex reserves.

• There is a likelihood of a short term fall in the markets.

• The impact of higher raw material and transportation costs, especially for industries that use petroleum based products could lead to increased cost pressures.

We think that rising oil prices are unlikely to impact direct fuel costs in India. It will however, impact us indirectly; as inflationary pressures continue to rise, until such time that there’s a correction in oil prices.

Our advisory constantly monitors geopolitical and global developments and is well positioned to take advantage of the short term impact on the capital markets. We have the capability to dynamically position your investments and take both aggressive as well as defensive calls, based on markets movements.