The blockade of the Strait of Hormuz by the United States of America signals the beginning of a new phase in a crisis that has set West Asia and the global economy on fire. Admittedly, there are whispers of peace negotiations — they must yield dividends soon. Otherwise, the prospect of a long war would deal a crushing economic blow to a number of nations — India ranks foremost among these. Already, the deep impact of the war on Iran is discernible across a number of segments of the Indian economy. For instance, there have been supply-side disruptions that have impeded production in energy-intensive industries. India’s kitchens — private and public — are struggling without stable gas supply. Moreover, the cascading effects are leaving their mark on allied sectors such as textiles, paints and cement. There are shortages in fertilisers and chemicals, deepening concerns for agriculture and, in turn, food security. That is not all. Exports to West Asia — India’s share of the total merchandise exports to this region stood at 16.4% in 2024-25 — will be dealt a blow; remittances from the region are expected to fall; there is also speculation of a current account deficit, rising inflation as well as a fiscal deficit as the Centre moves to provide subsidies to oil and marketing companies to restrict retail prices at the current level. Another elephant in the room is the toll on the job market: an estimate by the United Nations Development Programme suggests that the West Asia conflict could push 2.5 million Indians into poverty on account of reduced employment opportunities in labour intensive sectors and rise in prices. This threatens India’s much-touted demographic dividend.
In terms of policy response, there is likely to be greater emphasis on raising subsidies on food, petroleum and fertilisers. But what compounds the challenge for India, indeed Asia, is that the source of the crisis remains extraneous. These nations are disproportionately dependent on the afflicted region for their energy needs. The cuts, especially if peace remains elusive, will deepen. A World Bank assessment has suggested that India’s GDP growth is likely to be pulled down below the crucial 7% mark as a result of the war. All in all, the global economic horizon is darkening and the prolonging of the West Asia crisis could have an impact comparable to, if not greater than, the Covid pandemic that made the world and India crawl.