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Oil Could Hit $120 if West Asia Conflict Drags On, Warns Economist

A prolonged conflict in West Asia could drive global crude oil prices to around $120 per barrel, according to Infomerics Ratings' Chief Economist. This would force a significant revision of India's budget and RBI calculations, which were based on oil near $70. Higher prices would likely worsen India's key deficits and add to inflation, with a $10 rise potentially increasing CPI by 0.2-0.4 percentage points. The economist also warned of broader risks like capital outflows and supply chain disruptions if tensions escalate.

Key Points: Oil Price May Hit $120 on Prolonged West Asia Conflict

  • Oil could surge from $90 to $120
  • India's budget based on $70 oil
  • Higher prices worsen trade, fiscal deficits
  • Inflation may rise 0.2-0.4% per $10 hike
  • Risks include capital outflows, market volatility
2 min read

Oil could hit $120 if West Asia conflict drags on: Infomerics Chief Economist

Economist warns prolonged West Asia conflict could push oil to $120, forcing India to revise budget, inflation, and deficit calculations.

"If oil prices climb to USD 100 or even USD 120, several economic projections will have to be revised significantly. - Manoranjan Sharma"

New Delhi, March 7

Global crude oil prices could climb to around USD 120 per barrel if the conflict in West Asia continues for a prolonged period, said Manoranjan Sharma, Chief Economist at Infomerics Ratings, warning that an extended geopolitical crisis could significantly disrupt global economic calculations.

Speaking to ANI, Sharma said oil prices have already surged sharply within a short period. "Before the conflict, crude oil prices were below USD 70 per barrel, but they have already risen to around USD 90," he noted.

According to him, if tensions involving the United States, Israel and Iran continue to escalate and the conflict lasts longer than expected, oil prices could rise even further.

He explained that earlier expectations were that the conflict might ease within a few weeks, but the situation now appears increasingly uncertain. "If oil prices climb to USD 100 or even USD 120, several economic projections will have to be revised significantly," he said.

Sharma pointed out that India's budget assumptions and Reserve Bank calculations were based on oil prices being around USD 70 or lower, meaning a sustained spike would force policymakers to revisit their estimates.

Despite the potential shock from rising crude prices, he said India's economy is largely driven by domestic demand, which may help cushion the broader impact on GDP growth. However, he warned that higher oil prices would likely worsen the country's three key deficits -- trade deficit, current account deficit and fiscal deficit.

Historically, Sharma noted, increases in crude oil prices have had a clear impact on inflation. "A USD 10 rise in crude oil prices can add about 0.2 to 0.4 percentage points to CPI inflation...," he asserted.

If tensions continue, potential risks include capital outflows from emerging markets, volatility in financial markets and disruptions in supply chains, all of which could invariably affect countries like India.

Recalling past trends, Sharma said crude prices had once surged to around USD 145-147 per barrel more than a decade ago during a period of geopolitical uncertainty. While he expressed hope that such a situation does not recur, he stressed that the possibility of oil reaching USD 120 per barrel cannot be ruled out if the conflict intensifies or drags on.

- ANI

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Reader Comments

P
Priya S
Every time there's a crisis in West Asia, we end up paying the price at the pump. It's frustrating how global conflicts directly hit the common Indian's pocket. Hope diplomacy prevails soon. 🙏
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Aman W
The economist is right about domestic demand cushioning the blow, but let's be real. High oil prices mean higher input costs for businesses, which leads to job cuts or price hikes. The middle class gets squeezed from both sides.
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Sarah B
Working in logistics, I see this first-hand. Fuel is our biggest cost. A sustained price spike will make shipping everything more expensive, and those costs will be passed on to consumers. This could really slow down economic activity.
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Karthik V
While the warning is valid, I feel the analysis could go further. What about our strategic petroleum reserves? How much buffer do we have? And what's the plan to accelerate our shift to renewables and electric vehicles to reduce this dependency? Long-term solutions matter too.
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Nisha Z
My monthly budget is planned down to the last rupee. A rise in oil prices means less money for groceries, school fees, and medicines. It's not just a number on a screen; it's a direct hit to our family's well-being. Governments must protect the vulnerable during such times.

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