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Crude oil prices surged in global markets soon after Iran fired about 180 missiles at Israel late on Wednesday, with prices jumping 5 per cent in immediate reaction.
However, later this surge was washed away and on Thursday evening the prices of crude oil in the global markets increased by 3 percent. According to experts, if the war-like situation between Iran and Israel worsens, the prices of crude oil may increase further in the coming days. If this happens, it may have a negative impact on the Indian economy, and the current rise in the Indian stock market may also be reversed.
Why may crude oil prices increase due to tension between Iran and Israel?
Iran is a key member of the Organization of Petroleum Exporting Countries (OPEC). As a member country, Iran exports 17 lakh barrels of crude oil per day. It is also located at a strategic location near the Gulf of Hormuz. Other member countries of OPEC like Saudi Arabia, Qatar and United Arab Emirates etc. are producing countries of the Persian Gulf who export their crude oil production through this Gulf. In such a situation, if the war-like situation between Iran and Israel worsens, then it can have a negative impact on the export of crude oil from Iran as well as on the exports from these countries. At present, 40 percent of the total crude oil supplied in the world is supplied from OPEC member countries. As a result, this could adversely affect energy supplies around the world and prices could fall as supply falls short of demand.
If the price of crude oil increases, how can it adversely affect the Indian economy?
An increase of $10 per barrel in crude oil prices will increase India's inflation rate by 0.3 percent.
The increase in crude oil prices has a direct impact on the transportation of goods, which increases the prices of goods and services.
If the inflation rate increases then the growth rate of the economy will reduce because the purchasing power of the people will reduce.
If crude oil prices increase by $ 10 per barrel, India's current account deficit will increase by $ 12.5 billion, which is 0.43 percent of GDP.
According to available data, India will meet 87.4 per cent of its total fuel requirement through imports in 2022-23, compared to 83.8 per cent six years ago. Thus, if the price of crude oil increases, India's crude oil import bill will increase significantly.
If the crude oil import bill increases, dollar flows from India to foreign countries will increase massively, leading to a significant fall in the rupee.
If the rupee weakens, India's exports will become expensive, which will have a direct and adverse impact on the growth rate of the economy.
There is a possibility of recession in the stock market today
Experts are predicting that due to tension between Iran and Israel, the Indian stock market will open with a decline on Thursday and the recession will continue throughout the day. The second reason for this is that SEBI has tightened the F&O rules with effect from November 20, but the possibility of negative market reaction to these rules cannot be ruled out.