India will need to keep a close watch on developments in West Asia as tensions escalate, the Reserve Bank of India said in its March bulletin released on Monday, warning that the country’s dependence on crude oil imports leaves it exposed to external shocks.

The bulletin pointed to the renewed conflict in the Middle East and fresh trade investigations by the United States as factors driving volatility in global markets.

An article on the state of the economy said these developments have brought concerns over energy security, tariffs and supply chains back into focus.

“The renewed conflict in the Middle East and the US investigations into trade practices of key trading partners have brought uncertainties regarding global energy security, US import tariffs and global supply chains back to the centre stage,” the article said.

It added that “a prolonged period of war and high uncertainty would be detrimental to the broader global outlook, which was already in a state of flux prior to the recent events.”

For India, the risks are immediate. “…given India’s external dependence on crude oil, the evolving situation requires close monitoring and proactive measures to limit adverse spillovers,” the article said.

At the same time, the bulletin said India has some buffers in place. Foreign exchange reserves remain adequate to cushion external shocks, and the proposed Economic Stabilisation Fund could provide fiscal space to respond to global pressures.

The article said the Indian economy is in a better position to deal with such shocks than before, supported by growth, macroeconomic stability and external sector buffers.

It also noted that India has diversified its crude import sources and expanded refining capacity over time.

Since the conflict began, policy measures have been taken to reduce the impact of disruptions in fuel supply chains and to use domestic capacity to manage shortfalls, it added.

Global uncertainty has risen again. “After retreating for four consecutive months, rose again in February with an uptick in trade policy uncertainty,” the article said, referring to the impact of a US Supreme Court ruling on import tariffs.

Tensions in West Asia have intensified since end-February, disrupting oil infrastructure and key energy routes such as the Strait of Hormuz.

At the same time, the US administration has launched new probes into trade practices of major partners, adding to volatility in commodity and financial markets.

On the domestic front, the bulletin said the second advance estimates for 2025–26 point to continued resilience. High-frequency indicators suggest economic activity picked up in February, though inflation rose due to food and beverages.

“System liquidity has remained comfortable and the total flow of financial resources to the commercial sector rose, with a rise in financing from both the bank and non-bank sources,” it said.

The Reserve Bank clarified that the views expressed in the bulletin article are those of the authors and not its official position.