The ongoing war situation in West Asia could have lasting economic implications on India, with risks extending beyond immediate energy disruptions, the Ministry of Finance stated in its latest monthly economic review. The ministry warned that the next two decades could resemble the turbulent inter-war period of the last century, and thus India needs to safeguard macroeconomic and financial stability.
“We had also noted that the coming two decades might more closely resemble the inter-war period of the last century than not. If it is the baseline scenario, then maintaining steady, if not high, growth and macro and financial stability become paramount considerations for policy, as stability itself will be at a premium globally,” the review said.
The review emphasized that energy supplies remain a major point of vulnerability. While crude oil prices are the most visible stress indicator, the ministry highlighted that supplies of natural gas and cooking gas are equally critical for India’s economic resilience. India is heavily reliant on imports for its energy needs, thus it is extremely sensitive to disruptions in global supply chains.
The ministry flagged the security of maritime trade routes as another key concern. The safety of sea lanes is vital not just for oil imports but also for exports and capital flows that underpin India’s external sector.
“For oil traders, the central question is not whether hostilities pause but whether the risk to supply routes has fundamentally diminished. If the Strait of Hormuz remains vulnerable to disruption, the geopolitical risk premium in oil prices will inevitably return,” said the ministry.
The ministry said global oil markets are currently focused on whether the risks to supply routes have meaningfully diminished. Much of this concern centres around the Strait of Hormuz, a chokepoint through which a significant share of global energy trade passes.
The report added that markets may stabilise if the confrontation results in a credible shift in the regional balance of power and eventually the international system will gradually absorb the shock. However, if declarations of victory precede a genuine resolution of underlying strategic tensions, any calm in markets could prove temporary. The ministry cautioned that policymakers must prepare for a world where geopolitical shocks and economic volatility are likely to persist.
