Gulf Conflict May Trigger Global Inflation; India Could Be Exception

However, domestic financial markets have been supported by RBI interventions such as smoothing of G-sec yields and management of rupee volatility.

It, however, warned that prolonged conflict could still pressure India's macroeconomic indicators.

"Much to the chagrin of select opinion makers, RBI's intervention in the spot market, curbing the excess volatility, while bringing the rupee to below the 92 level marks a bold move given the lingering uncertainty on the exchange front," according to the report.

The closure of the Strait of Hormuz, through which nearly 20 per cent of the world's crude oil passes, has already pushed Brent crude prices higher.

At the last count, crude oil price jumped to $91.84 per barrel and WTI to $89.62.

"Our regression results indicate that for every $10 per barrel increase in crude oil prices, the CAD may widen by 36 bps in FY27," the report stated.

In a worst-case scenario, GDP growth could fall to 6 per cent if oil reaches $130 per barrel, according to SBI Research.

From a historical perspective, SBI Research noted that the current conflict coincides with the later stages of a Kondratieff Wave, theorised long-term economic cycles, suggesting the war could have lasting structural impacts on global economies.

The report also pointed to potential winners and losers.

The United States could benefit from higher oil and gas prices and a shift away from Russian energy supplies to Europe, while most other regions may experience economic drag.

According to SBI Research, central banks are reportedly increasing gold holdings as a safe-haven asset amid market volatility, with India holding 17.6 per cent of reserves in gold.

For India specifically, the conflict could impact remittances from the Gulf, crude imports, and trade with West Asian countries, though short-term measures like forward contracts and ongoing purchases of Russian crude may partially mitigate supply risks.

Banks and the private sector also face exposure to affected regions.

The report concluded that heightened uncertainty from the Gulf conflict is likely to continue influencing global oil prices, inflation expectations, and investor sentiment in the near term, and policymakers and investors should monitor developments closely.

- IANS