WEST ASIAN CRISIS : IMPLICATIONS OF VARIOUS REPORTS AND OBSERVATIONS ABOUT IMPACTS.

Unfolding of the  Israel-US - Iran  war crisis already started impinging both the global economy and Indian economy particularly in energy, threatening energy security, disrupting trade routes and  widening trade deficit and current account deficit. Energy prices and inflation rates are positively correlated.In India rise in fuel prices, LPG prices both domestic and commercial along with shortage and consequent elevation of price of fertilizers  which is essential ingredients for  farm input etc are bound to make not only higher inflationary trends but also a decline in agricultural output possibly in forthcoming Khariff season.Apart from agriculture,  energy crisis is bound affect a large number of industries and products like textiles, paints, cement, tyres, fertilizers and chemicals etc.

Global trade and movements of goods across Red Sea and Suez Canal are being disrupted, necessitating  rerouting via the Cape of Good Hope resulting in 15-20 days additional sailing time raising the freight and  costs even further. Since logistics, storage and transport are largely energy intensive, elevated logistic costs wll push up prices of final products with  a cascading effect. This can affect even Indian regular exports like electronic goods and Basmati rice .Financial markets, exchange rate and capital markets are  also experiencing brunt of current global developments in terms of frequent  and sharp volatility and decline in stock markets, decelerating exports but without no  decline  in  imports.Further foreign investment flows also witnessed decline in terms of net Foreign Investment (FDI) flows. Foreign Portfolio investment ( FPI) also showed heavy outflows partly due to depreciation of Indian currency. 

In recent times India has been able diversify it's sources of imported crude oil,gas,and fertilizers. Currently India is importing crude oil from 41 countries. Due to rapid increase in demand India's dependence on imported crude has been currently hovering around 90% in recent times, despite our search for alternative  non fossil fuel sources and  attaining the objective  of   net Zero emission by 2070.Infact in  solar energy  India occupies third position globally with an installed capacity of 13285 GW and in wind energy with 54 GW 4th position in global ranking and our march towards other sources of bio fuel and green energy continues. While the unfavourable supply conditions will escalate  the costs of our exports,on the  demand side the recessionary trends in the importing country is likely to shrink the demand despite depreciation of the currency which can offset the rise in prices to great extent. 

UNDP REPORT 

According to the UNDP  report entitled "Military Escalation in the Middle East : Human Development Impacts Across Asia Pacific "the conflict is widening human development pressures across Asia and Pacific. Through higher fuel,freight,and input costs, the shock is detiriorating household purchasing power, raising cost of  food security, straining public budgets,and weakening livelihoods. Preliminary assessment indicated that globally 8.8 million people are at risk of falling into poverty and in  West Asia  military escalation could cost Asia Pacific upto$299 billion,  India's poverty is expected to rise from around 400000 to to 2.5 million. The number of people pushed into poverty in the world due to conflict rises from approximately 1.9 million to  about 8.8 million across the globe and in South Asia with largest share ranging from about 1.7 million to  over 8 million reflecting factors like population size, and higher exposure to both income and price shocks etc.  While China is estimated to increase moderate increase in number of people falling into poverty to 620000.India's poverty estimate is expected to rise to 24.2% from 23.9 % earlier. According to UNDP an estimated 354033698 people are projected to live in poverty in the country. Estimates about Human Development Index(HDI) indicated that Iran's HDI could decline about roughly 1 to  one and half,whereas India is projected to experience a loss of half years .Due to the war India's HDI progress is expected to suffer loss of approximately 0.03- 0.12 years. In Asia Pacific region India being the large importer meets over 90% of oil needs through imports - 40% crude imports  and 90% LPG has been imported exclusivey from West Asia.

IMF ASSESMENT THROUGH WORLD  ECONOMIC  OUTLOOK  

IMF  in its April 2026 world Economic Outlook  entitled " Global Economy in the Shadow of War "presented a darkened global Outlook due to the prevailing Middle East war related crisis which started in February 28.The conflict has inflicted humanitarian costs ,damaged critical infrastructure and severely disrupted  both maritime and air traffic in the affected region.Economies around the globe face repercussions through direct impact of higher commodity prices, indirect second order consequences  of inflation expectations which is particularly sensitive to energy and food prices in Commodity importing emerging market and developing economies,they are at risk of being hit with a depreciation of their currencies and  consequent amplification of risks  sentiments in the financial and stock markets. The global economic impact will crucially depend on duration of conflict it's intensity and scale which are inherently unpredictable. 

Before the West Asia crisis global economy was facing Russia- Ukraine crisis on the otherhand hand the  impact of penal tariff imposed by US on other countries.  Due to geopolitical, tensions global economy started facing uncertainty. Medium term growth prospects also remained lackluster mainly due to geo economic fragmentation and structural challenges. Before the war world economy was performing better than expected. Global growth in the 4th quarter of 2025 increased to 3.9% .In China sequential accelerated  demand for 2025-26 increased. An increase in fiscal spending led to commendable growth in Germany.WEO data showed that global output growth which was 3.4 % in 2024 remained same level in 2025 but projected to decline to 3.1 in 2026 and expected to revive to  3.2% in 2027 whereas advanced economies growth is 1.8 and 1.9 % in 2024 and 2025 respectively which is projected to 1.8 in 2026 and 1.7 in 2027.USA growth indicated 2.8 in 2024 and 2.1  in 2025 which is projected to decline to 2.3 in 2026 and and 2.1 in 2027.Euro Area improved from 0.9 in 2024 to 1.4 in 2025  and projected to grow 1.1 in 2026 and 1.2 in 2027.Japan from  -0.2 in 2024  experienced positive 1.2% in 2025 and projected 0.7 in 2026 and 0.6 in 2027.Emerging Market Developing Economies grew 4.5% in 2024 and 4.4% in 2025 but projected to grow only 3.9% in 2026 but 4.2 % in 2027.China's real GDP growth  that remained at a higher level of 5.0 level both in 2024 and 2025 is projected to decline marginally to 4.4 in 2026 and 4.0 in 2027 respectively. As far as India's growth record is concerned it was 7.1% in 2024 and  7.6 in 2024 which is projected to stagnate around 6.5 for 2026 and 2027. Germany the largest economy of European Union which grew 0.7% only in 2025 is projected to witness only 0 growth in 2026 and 2027.On the contrary  France recorded -0.7 in 2024,-0.6%in 2025  and projected-0.4 in 2026 and 0 in 2027.Both  UK and Canada also showed negative growth of --0.5,-0.9,  for 2024 and 2025 and professional-0.6 for 2026 and -0.2 for 2027 respectively  Canada showed -0.2% growth for 2024 and for all the remaining years estimated at  0%.

IMF Outlook observed that after withstanding trade barriers and elevated uncertainty last year outbreak of war in the Middle East poses a new major threat to global economy. depending on the duration and intensity of the conflict. If the conflict is limited and short global growth is projected to slow to 3.1% in 2026 and 3.2% in 2027.Accordingly global headline inflation is projected to rise moderately in 2026 before resuming it's decline in 2027.Deceleration in growth and increase in inflation are expected to be more pronounced in Emerging Markets and developing Economies. On the otherhand a longer and intense conflict ,worsening geopolitical fragmentation, a reassessment of expectations surrounding AI driven productivity or renewed trade tensions could significantly weaken growth and destabilize financial markets. Rising public debt and eroding institutional credibility further aggravate vulnerabilities. There is also the possibility for  productivity gains from AI based optimum  solutions. 

IMPACT ON INDIA'S EXTERNAL SECTOR 

As far as India's external sector is concerned India's exports is likely to hit by both demand and supply side stress due to disruptions in West Asia as well as slow down in other countries including USA and Europe. Despite the depreciation of the currency trade deficit reached a three year high of $119  billion in 2025-26. Similarly India's regular trade surplus with USA narrowed down to  $ 34.4 billion in 2025-26 from $ 43.billion in the previous year. While total exports of goods and services posted moderate growth of  4.22%  in 2025-26  from the previous year's $ 825.26 billion, it was accompanied by a surge in imports to $ 970 billion widening the overall trade deficit to $ 119.30 billion in 2025-26 as against $ 94.66 billion in 2024-25. On the otherhand our  bilateral trade deficit with China swelled to $ 112.16 billion due to 16% increase in imports from China as against India's exports to China reaching US $ 151.1 billion. It has been observed that that 14% India's over all exports and oil imports were routed from Gulf region and it slipped down( imports from  UAE 2nd to 4th position, Saudi Arabia 5th to 8th,Iraq 7th to 16 th and Qatar 18 th to 20th).Elevated gold and silver prices and their imports were largely responsible for India's persistent trade deficit. 

Impact on exchange rate, Remittances and foreign investment flows are very significant. Already the Indian rupee has been depreciating for  the last few months. The rate of depreciation has further accelerated after the onset of West Asian crisis. It has been observed that as   global crude prices sour the price of fertilizers and other energy products  also increase and our exchange rate depreciated further it may aggravate both current account deficit and inflationary pressures. If the  west Asian crisis persists futher without effective and responsible Ceasefire there is further possibility for  not only reduction in inward remittances but also marginal reduction in employment opportunities of Indian diaspora living in West Asia.In the inflation front as per available data India's CPI Inflation increased from 3.2% in February to 3.4% in March 2026 as against the RBI medium term target of 4%..

CONCLUDING OBSERVATIONS 

Depending on the severity  of the West Asia crisis IMF  April 2026 Outlook put forward three possible scenarios 1: Which assumed a short lived conflict with 19% rise in energy prices, projecting 3.1% global growth in 2026 and 4.4% inflation. 

2.Adverse scenario:assuming further adversities and tighter financial conditions  projecting 2.5% annual growth and 5.4 % inflation in 2026.

3And severe stress Scenario :that assumes energy supply disruptions that extended further to 2027 projecting 2% global growth and inflation exceeding 6%.

As per the above given scenarios and observations in order sustain growth and stability policy makers have to tackle many challenges including achieving price and financial stability, safeguarding fiscal sustainability and tackling the external sector excessive exchange rate volatility which has to be contained even if temporary foreign exchange intervention and capital flow management are required. Supply side pressures in energy and logistics sectors continue to persist .In this context Confederation of Indian Industry (CII) has suggested  measures like conflict linked emergency credit guarantee scheme, collateral free working capital to affected sectors,temporary moratorium to debt etc. It has been observed that the Government may have to provide additional subsidies to Oil Marketing Companies (OMCs) in order to stabilise retail prices of petroleum products at present levels which may create fiscal burden  In nutshell apart from applying appropriate fiscal, monetary, trade and investment policies,  India must prioritize on  issue based diplomacy and multilateral collaborative approach to become a stabilizing force both in  conflict ridden region  and across the globe effectively.