IANS | 25 Apr, 2024
A sustained flare-up in geopolitical tensions in the Middle East, and
the consequent increase in crude oil prices, would negatively impact
Indian macros, ratings agency ICRA said on Thursday.
“Geopolitical
tensions may impact the Indian macros like CAD, currency, FPI inflows
and inflation. For India, Iranian trade is not significant. However, a
further escalation of the ongoing geo-political conflict may keep oil
prices elevated. If Iran chooses to close the Straits of Hormuz, Indian
macros would see a further negative impact," ICRA said.
While a
$10/bbl increase in average crude oil prices is likely to push up the
Current Account Deficit (CAD) by 0.3 per cent of the GDP, an escalation
of the conflict would also exert pressure on the USD/INR pair and may
impact Foreign Portfolio Investor (FPI) inflows to India.
Additionally,
this would pose upside risks for WPI inflation, and to a smaller extent
to CPI inflation projections for FY2025. A sustained surge in crude oil
prices could also exert a drag on GDP growth during the fiscal, ICRA
said.
Following Western sanctions on crude oil, Iran’s share in
the total Indian merchandise imports declined to below 1 per cent in
FY2023 from the average of 2-3 per cent seen in the decade before
FY2019.
Though India does not import any crude from Iran owing to
the sanctions, the ongoing geo-political tensions have led to an
increase in Brent crude prices, the research said.
Further, there
is a threat that Iran may close the Straits of Hormuz, which is the main
route of transport for crude oil from the Middle East (holding a major
share in oil imports) to India, ICRA said.