NEW DELHI: The US-Iran tentative deal to end their 107-day conflict and reopen the Strait of Hormuz could at once boost India’s economic sentiments, ease an already evident pressure on the fisc, avert an emergent balance of payments problem, and help the rupee to hold against the dollar, economists said.
If supply chain normalises fast and let prices of key commodities decline like oil and LNG decline, the Reserve bank of India may opt for a moderate upward revision of its GDP estimate of 6.6% for the current fiscal year, many of them felt. However, they cautioned that things were still unfolding.
Commerce Secretary Rajesh Agrawal said: “Definitely if the peace lasts in the region, we will have a positive impact on the trade. Mobility in the Gulf of Hormuz will also have a positive impact. Let’s wait for the agreement to be signed and the details to be out. “
Estimates of current account deficit (CAD) for FY27 too have started changing and turning significantly lower than 2.1% of the GDP estimated by the RBI. Some put it in the relatively benign range of 1-1.5%.
The exchange rate of the rupee against the US dollar is now to hover around 95 in the short term, with likely improvement to 92 or thereabouts in the medium term.
While the fertiliser subsidy bill was estimated to double from the Budget Estimates to Rs 3.4 lakh crore in FY27, normalisation of the Hormuz traffic in a few weeks would curb this escalation significantly, helping the exchequer save tens of thousands of crores. The measures to spur capital inflows by the government and the RBI, BoP for FY27 may be neutral or even a small positive, some analysts said. This compares with the median-level of BoP estimated for the year at $ (-)48.1 billion by the RBI.
Energy experts said the reopening of the Strait of Hormuz would “materially improve” India’s energy security and external sector dynamics. India’s annual energy import bill stood at nearly $175 billion, making it highly sensitive to crude price movements. Normalisation of insurance premiums and revival of surcharges by shipping lines, however, will occur only over several months, they added.
Historically, every $10 per barrel decline in crude prices reduces India’s annual import bill by a considerable $13–15 billion. The return of Iranian barrels could also increase global supply liquidity, narrow freight and insurance premiums, and moderate refining feedstock costs, offering broader relief across fuel, petrochemicals and fertiliser value chains, analysts said.
The prospect of a peace deal has already pushed Brent crude down to around $83 per barrel, while analysts expect Asian spot LNG prices to fall by up to 40% to $12-15 per MMBtu from the current $18-20 range, potentially delivering significant relief to India’s energy import bill, inflation, subsidy burden and industrial fuel costs.
An uninterrupted shipping route would reduce the risk of supply delays and help Indian refiners maintain predictable procurement schedules. “Since India specialises in producing refined petroleum products, capacity utilisation in its refining facilities will progressively increase and exports of refined products will surge, easing the developing pressure on the current account balance,” said a noted economist.
Federation of Indian Export Organisations President S C Ralhan said emerging peace framework is a positive development for global trade, shipping and supply chains. He said it might improve the movement of goods, stabilise freight and insurance costs, and enhance predictability in international trade flows but also for our Indian exporters. This would provide boost to Indian exports in coming months as Golf Cooperation Council (GCC) is one of the key markets for the country.
Earlier reports said the disruption of Strait of Hormuz—through which 20% of the world’s oil transits—saw a 70% drop in vessel traffic after the start of the war. Shipping companies put a war risk surcharge of $ 1,500 to $ 2,000 per 20 feet container to their charges; some of the largest maritime insurance mutuals even withdrew war risk insurance cover for ships entering the Persian Gulf while others jacked up risk premiums by 25-50%.
Source: The Financial Express
