Iran-Israel Conflict: What Gets Costlier And How It Might Affect Common Man In India

The ongoing conflict between Iran and Israel could significantly affect household budgets in India. The primary reason is the potential surge in global crude oil prices due to instability in the Middle East, a key region for energy supplies. With India importing over 85% of its crude oil, any price increase internationally will likely impact the domestic economy.

On Friday, global oil prices surged by up to 13% as tensions escalated between these two Middle Eastern nations. This marked the largest single-day increase since Russia's invasion of Ukraine in February 2022. However, prices dropped by $1 per barrel on Monday after reports emerged that Iran was seeking to end hostilities with Israel.

The Direct Hit: Fuel and Transport

For a common man, the most immediate effect will be felt at fuel stations. As global crude prices rise, domestic oil companies will need to hike petrol and diesel prices. This not only makes personal vehicle use more costly but also affects goods' costs due to increased transportation expenses.

LPG cylinders, essential in Indian kitchens, and kerosene used by vulnerable households are also expected to become pricier. This will directly raise daily household expenses. Additionally, higher diesel costs will lead to increased fares for public transport like buses and private taxis, impacting millions' daily commuting costs.

How The Ripple Effect Might Increase Your Grocery Bill

Rising fuel costs have far-reaching consequences beyond just transportation. A significant portion of goods, including essentials like fruits and grains, are transported by road across India. Higher diesel prices mean higher freight charges, which consumers will ultimately bear through increased retail prices.

This situation contributes to overall inflation as expensive fuel leads to pricier goods. Consequently, monthly grocery bills will rise, requiring more spending on necessities. A sustained $10 per barrel increase in crude oil could raise India's consumer price index (CPI) inflation by 0.4 percentage points.

Trade Disruptions and a Weaker Rupee

The Iran-Israel conflict threatens vital maritime trade routes such as the Strait of Hormuz and the Red Sea. Any disruptions here would result in longer shipping times and higher freight and insurance costs for cargo. This would make imported goods like electronics and chemicals more expensive for Indian industries.

A higher import bill due to costly oil increases demand for US dollars, putting pressure on the Indian Rupee. A weaker rupee makes all imports costlier, further driving inflation.

Sectors Impacted By Iran-Israel Conflict

Certain sectors of India's economy will feel direct impacts from this conflict. Agriculture faces challenges as rising diesel costs for tractors and irrigation pumps increase input expenses across the sector. This could eventually lead to higher food prices.

Industries reliant on petroleum-based derivatives—such as paints, chemicals, tires, and plastics—will encounter higher input costs too. These increases are likely to be passed on to consumers through pricier products.

India has not been purchasing crude oil from Iran since mid-2019 due to U.S. sanctions targeting Iranian oil exports. Meanwhile, China sources all its oil from Iran; any disruptions there would directly affect China and subsequently impact India as Beijing seeks alternative suppliers.

The economic repercussions of the Iran-Israel conflict may seem distant but are poised to affect daily life in India directly. From fueling vehicles to putting food on tables, living costs are set to rise significantly during this period of heightened expenditure.