
Iran-Israel Tensions May Drag India’s GDP Down to 5.1% if Oil Hits $130: SBI Research
India, which depends on the Strait of Hormuz for 40% of its oil imports, is especially affected by the Israel-Iran confrontation, which is upsetting international markets and influencing oil prices. India’s economy may be severely strained by rising petroleum costs, underscoring the necessity of careful control of energy policy.
Global markets have been uneasy due to the growing tension between Israel and Iran, and geopolitical risks have increased due to possible U.S. involvement. Due to India’s large reliance on oil imports, SBI Research emphasised the consequences of this crisis, concentrating on interruptions in global supply chains and rising crude oil prices.
Risks to the World’s Oil Supply and crisis:
SBI Research noted that the Strait of Hormuz, a vital maritime chokepoint that handles 20% of global oil transits, has become a focus point in the midst of the crisis. Approximately two million barrels of crude oil per day, out of 5.5 million barrels per day, transit through this small waterway, making up roughly 90% of India’s crude oil imports. Since there aren’t many other options for moving oil if the strait is closed, any disruption here may put a significant burden on the world’s oil supplies.
India is still at risk even though it does not buy oil directly from Iran because 40% of its imports pass through this country. According to the broking, Iran is the world’s ninth-largest producer of oil, and major disruptions in its output brought on by sanctions or violence would further destabilise supply systems and impact global prices.
However, it also stated that the Chinese Import Crude Oil Tanker Freight Index has increased, indicating heightened tensions, and that global shipping costs linked to the transportation of crude oil have also responded. Despite being below recent highs, the Baltic Dirty Tanker Index is still a crucial indicator, and the increased volatility is reflected in the cost of maritime insurance.
Although SBI Research warned that more extreme surges would have significant economic repercussions, it predicted that, under a baseline scenario, crude prices might rise to $82-$85 per barrel, above the current long-period average of $78.
Historical and Political Context:
SBI Research examined the complicated relationship between Iran and Israel, pointing out that Iran was among the few Islamic nations to acknowledge Israel’s founding in 1948 and that relations persisted until the Iranian revolution of 1979, which significantly changed Iran’s position.
Tensions between Iran and Israel and the United States have increased since the revolution due to Iran’s opposition to Israel, its desire for regional hegemony, its nuclear program, and its support for extremist organisations like Hamas and Hezbollah. It further stated that concerns of a wider conflict have increased as a result of recent Israeli strikes on Iran’s military and nuclear installations, which were followed by U.S. military assistance.
India’s Import Strategy and the Volatility of Oil Prices:
According to the report, the Strait of Hormuz is strategically significant for world oil supply, as evidenced by the day-long spike in Brent crude prices from $69 to $74 per barrel following Israel’s strike on Iran. India, the world’s third-largest importer of oil, sources its petroleum from more than 40 nations, importing over 5.5 million barrels per day. India’s oil imports from Russia and the United States have increased since 2022, outpacing those from more established West Asian sources like Saudi Arabia and Iraq. Nonetheless, it pointed out that India’s energy security and inflation dynamics will be impacted by any blockade or intensification of the conflict due to its continuous reliance on the Hormuz route.
Economic Impact on India:
According to SBI Research, crude oil prices have increased by almost 10% since early May. In the past, India’s consumer price index inflation has increased by 25–35 basis points for every $10 increase in crude prices, while real GDP growth has decreased by 20–30 basis points. India’s GDP growth may decelerate considerably, possibly reaching 5.1 percent, if oil prices sharply rise to $130 per barrel. In light of current international uncertainty, this would put strain on the nation’s economic stability and balance of payments.
In conclusion, given India’s heavy reliance on oil imports and vulnerability to geopolitical threats in the Persian Gulf, the current Iran-Israel war has far-reaching effects, especially for the country. SBI Research emphasises how crucial it is to keep a careful eye on changes in the price of crude oil and supply chain interruptions because these elements would have an immediate impact on India’s inflation trajectory and chances for economic growth. Although certain risks are reduced by India’s diverse oil sourcing strategy, careful economic and energy policy management is required due to the Strait of Hormuz’s strategic importance and regional tensions.