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Look back in 2023 to see how the ongoing conflicts in Israel and Ukraine affected the global and Indian economies.

The ongoing conflict between Israel and Ukraine is impacting the global economic scenario, the echo of which is being felt in various sectors including the Indian economy. These regional crises have far-reaching implications, affecting trade, energy markets, investor confidence and geopolitical stability.

impact on global economy

Energy Market:

Tension in Ukraine, a key transit route for Russian natural gas to Europe, has raised concerns about disruptions to energy supplies. Any escalation in conflict could potentially disrupt gas flows, causing instability in global energy markets and putting downward pressure on prices. This scenario could spell trouble for economies heavily dependent on energy imports, leading to increased inflation and reduced consumer spending. The global economy is already facing an oil market deficit as major oil producers Saudi Arabia and Russia have announced supply cuts of a combined 1.3 million barrels per day (mbpd) by the end of 2023. Currently, oil prices are hovering above $90. Per barrel-mark. Any further escalation of the conflict will require careful monitoring, especially given the ‘prolonged high’ interest rate scenario for the global economy.

Global business:

Instability in the Middle East, particularly Israel, poses risks to global trade due to the region’s importance as a trade route. Increased geopolitical tensions often result in increased shipping costs, supply chain disruptions, and decreased investor confidence, negatively impacting global trade volumes and economic growth.

Investor Confidence:

The uncertainty arising from these conflicts continues to impact investor sentiment around the world. Geopolitical turmoil creates risk aversion among investors, leading to capital flight from affected regions and volatility in financial markets. This volatility could impact investment decisions, hampering economic growth prospects globally.

impact on indian economy

Energy Prices:

India, a major importer of oil and natural gas, remains sensitive to energy price fluctuations. Any disruption in energy supplies from the Middle East or Russia due to an escalation in these conflicts could have a significant impact on India’s import bill, leading to higher inflation and fiscal pressures.

Between April and September 2023, about 44 percent of Indian oil imports were from West Asia, according to Reuters data. In October, the World Bank’s latest India Development Update (IDU) said it projected India’s growth rate to be a strong 6.3 per cent in fiscal year 2023-24, down from the previous 7.2 per cent amid “intense global headwinds”. Was. ,

In the next financial year (2024-25), the Reserve Bank of India (RBI) pegs crude oil prices at $85 per barrel and exchange rate at Rs 82.5 against the US dollar. “A 10 per cent increase in oil prices could increase inflation by about 30 basis points and impact growth by about 15 basis points,” according to the RBI forecast.

Trade routes and costs:

India’s trade may face challenges due to possible disruption in key shipping lanes passing through the affected areas. Increases in shipping costs and delays in transporting goods could impact a country’s exports and imports, affecting the trade balance and economic growth.

Investor sentiment and markets:

Uncertainties arising due to conflicts abroad affect investor sentiment in India’s financial markets. Fluctuations in global markets and capital outflows can lead to instability in domestic markets, affecting stock prices, currency valuations and the overall investment climate.

The ongoing conflicts in Israel and Ukraine are not isolated incidents; Their effects extend beyond the areas directly involved. The interconnectedness of the global economy means that a disturbance in one part of the world can have far-reaching consequences. As these conflicts continue, governments and policymakers globally, including India, will need to address these challenges and adopt measures to mitigate potential economic consequences. Addressing these conflicts diplomatically and finding peaceful solutions is important not only for the stability of the regions involved, but also to protect the global economy from further disruptions and promote sustainable economic growth around the world.

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