West Asia conflict: Govt keeps tabs on crude prices & goods movement

NEW DELHI: Policymakers are keeping a close eye on oil prices and goods movement in the wake of the latest tension in West Asia, while maintaining that it’s too early to assess the impact on the economy.

The first direct impact will be felt through energy prices, especially with India dependent on imports for bulk of its oil and gas needs, most of which is routed through West Asia. Any spike in oil prices will have a bearing on consumers and industry.

The Modi govt has managed pump prices through a mix of taxes and margins for oil retailers and the regime will continue. While oil companies were making profits on every litre of petrol and diesel until global prices went up, retail prices will first be regulated through reduced margins and if the situation warrants govt has headroom to lower domestic levies as well as import duty. On Sunday, Brent prices went up 10% to $80 a barrel on over-the-counter sales.

Given that there is less than a month to go for the close of the financial year, there is unlikely to be an impact on the budgeted numbers for the year. “It will all depend on how long this situation persists. At the moment, it’s early to say what the impact will be,” said an official.

If the tension persists, there will be an impact on goods moving in and out of the country and some of the supplies, including oil, gas, fertiliser and other critical inputs from the west. At the moment, no shortage is seen.

A critical issue in the coming days will be movement of ships, some of which are stranded after the military action by the US and Israel and Iran’s response on Saturday. “We will get to know in the next few days,” said Fieo director general Ajay Sahai.

Danish container shipping group Maersk will pause sailings through the Bab el-Mandeb Strait and the Suez Canal and reroute ships around the Cape of Good Hope, it said on Sunday. If this persists, ships going to Europe and the US will have to take a longer route, resulting in two-three weeks of additional sailing time, and impacting the supply of containers and vessels.

What will add to the complication is India’s strong reliance on DP World, which now accounts for a large chunk of goods movement from the country’s shores. A disruption in UAE will mean that Indian businesses will have to reroute goods flow.

So far, only the rice traders have been advised to review how they price their goods. “Indian Rice Exporters Federation has issued an advisory to its members in view of the deteriorating situation in Iran and parts of the Gulf, and reports that movements through the Strait of Hormuz could be restricted. Members are advised not to undertake new CIF (cost, insurance and freight) commitments for these destinations and, wherever feasible, to conclude sales on FOB (free on board) terms so that freight & insurance and related risks remain with the international buyer,” the industry body said Sunday.