IANS | 18 Apr, 2024
The price of crude oil would breach $100, the central bank may delay
cutting the repo rate over uncertainty over disinflation, exports to
West Asia may be affected and an increase in shipping costs are some of
the likely impact if the conflict between Iran and Israel escalates,
said a top economist at Acuite Ratings & Research.
"With the
drone and missile attacks on Israel by Iran, there is a perceptible
increase in the geo-political risk quotient, imparting higher
uncertainty to the global economic outlook. Although crude oil prices
are yet to rise sharply beyond $90 per barrel, there is a significant
likelihood that it will breach the $100 level if the conflict
intensifies further over West Asia," Suman Chowdhury, Chief Economist
and Head-Research, Acuite Ratings said.
According to him, the US
Federal Reserve and Reserve Bank of India (RBI) would delay cutting the
interest rate owing to the increased geopolitical risks and uncertainty
on disinflation.
Further, there will be higher under-recoveries
for the public sector oil companies in India if the increase in crude
prices are not passed on to the consumers of petrol, diesel and LPG.
"The
oil subsidy bill is likely to be above the interim budget for FY25. If
the price rise is sustained, there is also a likelihood of pass-through
after the elections," Chowdhury said.
Similarly, the prices for
oil derivatives are likely to rise, impacting the operating margins for
sectors like petrochemicals, speciality chemicals, and paints.
In
the area of exports-imports, the escalation in conflict will result in
increase in shipping costs for imports pushing up the wholesale
inflation; merchandise exports to West Asia might slowdown.
"While
we have a forecast of 6.7 per cent and 5.0 per cent for GDP growth and
retail inflation in FY25, these can become vulnerable to revisions if
the Iran - Israel conflict escalates further," Chowdhury added.
