Oil prices, freight rates may pinch economy

Time of India

15 hours ago

Representative photo
NEW DELHI: The fresh conflict in West Asia can have a spillover effect on India just when inflation was moderating and businesses were learning to cope with the unpredictability of Trump's tariffs.
While the direct impact of Israel's attack on Iran will be limited, given that India has very little trade left with the Islamic nation, the indirect fallout can be significant.
The biggest concern will be the implication of higher oil prices on the Indian economy. While oil companies have not passed on the gains of cheaper crude to consumers, they have been pocketing the large gains and passing on a part of it to govt in the form of higher dividends.
The tension, if it persists, could prove to be a party pooper for state-run petro retailers as well as the Centre. In unregulated segments such as ATF, consumers may have to bear the burden of higher crude prices.
There may be spillover into certain commodities such as saffron, where Iran is a large producer, and any disruption results in a price spike. However, it is unlikely to have much implication on the household budget.
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The indirect impact may be bigger. Exporters fear disruption of sea routes, higher freight costs, and are keeping tabs on crude prices.
'The major concern is regarding disruption of trade routes: Red Sea and Suez Canal, which are vital for our exports to Europe, US, Africa, and West Asia. Freight rates are likely to go up and overall logistics cost. Uncertainty will hit at the demand,' said Ajay Sahay, director general at Fieo.
Freight rates have already firmed up following a temporary truce between the US and China. Drewry's WCI increased 59% during the last four weeks, as Trump's 'pause' on import tariffs led to the resumption of US-bound traffic. Freight rates from Shanghai to New York rose 2% to $7,285 per 40ft container in the past week and 67% since May 15 (four weeks ago), while spot rates to Los Angeles increased 1% in the past week and 89% in the past four weeks.
Prices on the Transpacific eastbound route changed marginally amid the fresh injection of capacity, the agency said.
Besides, higher prices of commodities such as gold — a favoured investment option for Indian households — will push up the import bill and widen the trade deficit. But it is still early days and over the last few years, the world has managed to live with conflicts.
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