abplive94d ago
<p><em><strong>By S.Ravi </strong></em></p> <p>The past few weeks have reminded the world that geopolitics and economics are deeply intertwined. The ongoing tensions involving the United States, Israel, Iran and the Middle East have created uncertainty across the Middle East. Military strikes, retaliatory threats, and concerns about disruptions in shipping routes such as the Strait of Hormuz have pushed global markets into a phase of caution and volatility.</p> <p>For India, these events may seem geographically distant, but their economic consequences arrive much closer to home. Oil prices surged sharply following the escalation of the conflict, and global stock markets reacted immediately with volatility as investors moved toward safer assets.</p> <h2><strong>India’s Oil Dependence: The Core Vulnerability</strong></h2> <p>At the heart of the issue is crude oil. India imports nearly 88-89 per cent of its crude oil requirements, making it highly sensitive to price fluctuations in global energy markets. When tensions rise in the Middle East, oil prices tend to spike due to fears of supply disruptions. In recent weeks, prices jumped significantly after the escalation in the Iran conflict, forcing countries like India to explore alternative suppliers and increase supply buffers.</p> <h2><strong>How Rising Crude Prices Impact Everyday Life</strong></h2> <p>The effect of rising crude prices is not confined to fuel stations. It quietly seeps into everyday life. When oil becomes more expensive, transportation costs rise. This increases the cost of delivering goods, from vegetables to consumer products across the country. Airlines raise fares, logistics companies adjust prices, and manufacturing costs climb. Eventually, consumers feel the pressure through inflation. A family that once spent a certain amount on groceries, travel, and utilities may find those same expenses gradually rising.</p> <h2><strong>Capital Markets React: Investor Behaviour Shifts</strong></h2> <p>At the same time, global uncertainty affects capital markets. When geopolitical tensions escalate, international investors often become cautious. They may pull money out of emerging markets or shift investments to safer assets like gold or US bonds. This can lead to volatility in stock markets and fluctuations in currencies. For Indian markets, this means that the Sensex and Nifty may swing unpredictably as foreign investors adjust their positions.</p> <h2><strong>The Sentiment Effect: Why Consumers Pull Back</strong></h2> <p>These two forces, crude prices and capital market movements, combine to influence consumer sentiment. When people hear news about rising oil prices or falling stock markets, it creates a psychological effect. Consumers begin to feel uncertain about the future. They may postpone buying a new home, delay upgrading their car, or hold back on discretionary spending. Businesses notice this hesitation, which can slow down economic activity.</p> <h2><strong>India’s Track Record: Resilience Through Crises</strong></h2> <p>However, India’s economic story also shows remarkable resilience in navigating such global shocks. The country has faced similar situations before and managed to emerge stronger. One of the earliest examples was the Gulf War in 1990-91, when oil prices spiked due to conflict in the Middle East. India was heavily dependent on imported oil even then, and the crisis strained the country’s foreign exchange reserves. While the situation was challenging, it also led to significant economic reforms. The liberalisation policies introduced in the early 1990s opened India’s economy to global markets and ultimately accelerated long-term growth.</p> <p>More recently, the COVID-19 pandemic created an unprecedented economic shock. Global markets crashed, supply chains collapsed, and oil demand fluctuated dramatically. Yet India stabilised its economy through policy interventions, infrastructure spending, and targeted financial support. Over time, the country returned to a path of growth.</p> <h2><strong>Lessons For The Future: Building Economic Resilience</strong></h2> <p>These experiences highlight an important lesson. While external shocks can temporarily disturb markets and sentiment, the Indian economy has historically adapted and recovered. One important strategy will be to strengthen India’s strategic petroleum reserves. By maintaining larger reserves of crude oil, the country can cushion the immediate impact of sudden price spikes or supply disruptions. Strategic reserves act like an economic insurance policy during global crises.</p> <p>Diversifying energy sources is another crucial step. India has already begun investing heavily in solar energy, wind power, green hydrogen, and electric mobility. Over time, reducing dependence on imported oil will make the economy less vulnerable to geopolitical tensions.</p> <h2><strong>Strengthening Markets And Policy Response</strong></h2> <p>The government can also encourage domestic capital market participation. When a larger share of investment comes from Indian households and institutions rather than foreign investors, markets become less sensitive to global capital flight during crises. Stable fiscal and monetary policies will remain equally important. Coordinated action between the government and the Reserve Bank of India can help manage inflation, stabilise the currency, and maintain liquidity in financial markets.</p> <p>Finally, targeted support for consumers can play a vital role in protecting household budgets. Temporary tax adjustments on fuel, subsidies for essential commodities, and direct benefit transfers can help soften the inflationary impact of rising energy costs.</p> <h2><strong>Navigating A Globalised Economy</strong></h2> <p>We are truly a global village and in an interconnected world, events in distant regions inevitably influence domestic economies. For India, the interplay between crude prices and capital markets serves as an early indicator of how global uncertainty can affect consumer sentiment. The key, however, lies not in eliminating these shocks, but in building resilience. A combination of energy security, diversified markets, prudent policy decisions, and strong domestic demand can ensure that even when global conflicts disrupt economic stability, consumer confidence in India remains steady.</p> <p><em><strong>(The author is former BSE chairman and Founder of Ravi Rajan and company )</strong></em></p> <p><em><strong>[Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP News Network Pvt Ltd.]</strong></em></p>
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