India enters FY27 on strong footing but FinMin warns of ‘long-lasting’ impact from West Asia conflict
Tensions in West Asia have increased uncertainty in the global economy and financial markets and volatility may remain high for some time, the Nirmala Sitharaman-led ministry said in its February Monthly Economic Review published on Friday.
“The consequences of this conflict for India are significant and may last longer in ways that are not immediately apparent,” the report said, adding that there are still significant uncertainties about how the conflict will eventually end.
One of the key concerns highlighted in the report is the security of the Strait of Hormuz, a key route close to Iran for global oil shipments. Any disruption in the Strait could cause oil prices to rise due to increased geopolitical risks.
“If the Strait of Hormuz remains vulnerable to disruption, the geopolitical risk premium in oil prices will inevitably return. If the conflict ends with a credible shift in the regional balance of power, the international system will gradually absorb the shock and markets will stabilize. However, if the declaration of victory precedes the resolution of the underlying strategic rivalry, the apparent calm may be temporary,” the report said.
The ministry added that the long-term impact of the conflict will depend on how the regional balance of power will change once the hostilities end. If the situation credibly stabilizes, global markets may gradually adjust.
But he warned that any calm in markets could be temporary if victory claims emerge before deeper strategic tensions are resolved. Despite these risks, the Finance Ministry said India’s economic position today is stronger than during previous periods of instability in the Gulf.
“India enters the next fiscal year on a solid macroeconomic basis, unlike previous turbulent periods in the Gulf region,” the report said, adding that stronger fundamentals could help the country manage potential shocks arising from energy markets and global uncertainty.
