Check inflation as Gaza war pushes up crude oil prices
The Ukraine War, into its second year now, has burdened the world with energy and food shortages, and volatile oil prices. But suddenly there is a new war on and we have a new crisis to grapple with. The flashpoint is the Gaza Strip for now, but the fighting may spread. Even as the Israelis and Palestinians come to terms with the horrific death toll, the reverberations on the world economy can be felt loud and clear. Crude oil prices surged sharply on Monday as fighting intensified in and around Gaza. Brent crude rose 3.44 percent to $87.49 a barrel, while US West Texas intermediate crude rallied 3.85 percent to $85.98. The upward trajectory for oil, which had eased by $5-6 a barrel in recent days, is likely to continue as there is perception of a shortage looming.
Iran, a major oil producer, had been pumping more oil after the US began easing sanctions on Tehran. However, Iran’s public backing of the Hamas attacks may push the US to turn the screws once again, resulting in a supply cut. A bigger fear is that if Iran is drawn into the conflict it could disrupt seaborne oil supplies through the Strait of Hormuz; about 37 percent of seaborne oil passes through the narrow waterway off Iran’s southern border. For India, which imports 85 percent of its needs, crude oil prices rising to $100 or beyond will have serious implications. Inflation has just about been brought under control; if oil prices rise we run the risk of getting hurt again.
Another significant casualty is going to be the India-Middle East-Europe economic corridor. The transport and communication corridor running from India to Europe through Saudi Arabia was aimed at countering China’s Belt and Road Initiative. However, with the Middle East under war clouds, it will be some time before the multi-nation bonhomie can be resumed. Though insignificant, India’s trade with Israel may be hit too. What is significant though is that India is a major importer of Israeli security technology. Given the failure of Tel Aviv’s vaunted security system in detecting the Hamas attack, perhaps our government may want to order a review. Despite the coming crude price rise, the major task at hand for the government is to keep retail oil prices in check and ensure that inflation does not surge.