Food & fuel price rise among collateral damage after Iran-Israel fallout

It is a measure of the international community’s scepticism regarding pronouncements made by US President Donald Trump that it is yet to fully take at face value his announcement that Iran and Israel have agreed to a staggered ceasefire that would bring about an “official end” to the conflict between the two countries. Not only has Israel refused to confirm this ceasefire, a series of powerful explosions actually rocked Tehran early Tuesday morning, hours after Trump had made the announcement. However, considering the amount of collateral damage this conflict is inflicting on global economies, the international community is keeping its fingers crossed that this time around Trump is not bluffing and the 12-day-long hostilities do come to an end. The main damage has been caused, of course, by the rise in the price of crude oil in the market in response to the threat to its continuous supply. This has meant a rise in energy and fuel costs across the world, with food prices, and spending on infrastructure and welfare programmes taking a hit and entailing higher costs for consumers across Asia. For Asian nations, which are fully dependent on oil from the Gulf states, volatility in that region is causing immense pressure. The latest threat from Iran that it would contemplate the closure of the vital Hormuz Strait has added to the anxiety that the price of crude would rise further.

As for India, the sole silver lining appears to be that the supply of imported crude will not be interrupted though, as reported in this newspaper, Union Minister for Ports, Shipping and Waterways Sarbananda Sonowal has conceded that oil prices might rise. The two water-bodies connected by the Hormuz Strait to the Arabian Sea are the Persian Gulf and the Gulf of Oman, which means that major oil-producing nations like Iran, Saudi Arabia and UAE depend on it for access to open seas. But, as India imports a bulk of its crude from Russia, with the Eastern Economic Corridor being operational, supply from there will continue. At the same time, crude imports from the US will not be impacted because of the plethora of alternative routes. Also, alternative routes for crude from Saudi Arabia and the UAE exist despite the conflict in the Middle East, although supplies might take a little longer to reach Indian ports. One cause of concern is the Minister’s admission that oil prices might witness a slight rise. Experts aver a 25 percent increase in global oil prices would raise India’s oil import bill by an estimated $US30-40 billion annually, placing substantial pressure on the current account deficit, the rupee and domestic inflation. Thus, along with the international community, India, too, will be fervently hoping that for once Trump proves right and the collateral damage from the Israel-Iran conflict would end!