A potential escalation of the Israel-Iran conflict could be damaging for the global energy trade as Iran holds sizeable control over the Strait of Hormuz.
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Global geopolitical situation has been fragile since the start of the Russia-Ukraine war in Feb-22. In the latest development, a potential escalation of the Israel-Iran conflict could be damaging for the global energy trade. Notably, the price of Brent crude has spiked to USD 75 pb currently, marking a sharp jump of more than 15% in Jun-25 (so far) - the highest since the start of the Russia-Ukraine war. Meanwhile, bullion, which was already in a bull market, saw a price increase of ~5% in Jun-25 so far to USD 3450 poz. Sharp gyrations in international commodity prices, esp. for ones which India is a key importer of, can have adverse macroeconomic implications. As per the RBI, every 10% increase in the price of crude oil (assuming complete pass-through) could increase CPI inflation by 30 bps while lowering GDP growth by 15 bps, besides having adverse spillover impact on its twin deficits. We would assess the unfolding of the Israel-Iran conflict for direct (trade) as well as indirect (commodity prices and financial markets) implications on India’s economy and financial markets. For now, India’s limited trade with Israel-Iran renders the scope of direct impact as minimal. On the indirect front, as long as the price of Brent stays under USD 80 pb on average basis in FY26 (it averaged at USD 79 pb in FY25), there should be no adverse macro-financial spillover impact on India.