Monday, September 16, 2013

Will the Syria crisis add fuel to our economic woes?

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These days along with dismaying market news, one country is making its way to the headlines. Syria - a country in the Middle East, along the eastern shore of the Mediterranean Sea. The world was shocked on August 21st, 2013 when the news of a gas attack killing hundreds in Syria spread like wildfire all across the globe.
After the Syrian President Bashar al-Assad yet again denied carrying out this chemical attack, the US President Barack Obama won backing from key US political figures for a military strike on Syria. While the strike will be ‘limited’ in nature, according to the US President Obama it was needed to 'retaliate' President Bashar al-Assad’s act of flouting international warfare conventions through the chemical attack.
Syria's ally Russia plans to put Syria's chemical weapons under international control to avert US military action. But the plans are set off for another round of negotiations at the UN. However after intense diplomatic activity with Russia, President Obama for now has requested to 'postpone' a Congressional vote on authorizing military force against Syria. While the crisis seems to have abated for the moment, one wonders if this is the end of it or just a clam before another Desert Storm.
While we understand the urgent need to control the mayhem, in Syria but are not sure if a fresh round of killing will help them stop killing in anyway, what comes out as a bigger question is will this attack affect the already bruised Indian economy?
Just like a cherry on the cake, but in a negative way, this attack could have adverse effects on the Indian economy. Given the quagmire the Indian economy is in, US military action against Syria will only further dampen the vicious financial circle. The move has ignited global crude oil prices that touched $115-a-barrel in trade on Tuesday, 3rd September, 2013 which could further increase if the crisis escalates.

In addition to the "extremely volatile" exchange rate, the geopolitical situation in the Middle East is leading to pressure on international oil prices. The US military intervention in Syria is primarily a cause of concern for India because of its impact on global oil prices. Any western involvement in Syria may draw its neighbouring countries deeper into the fray, and the conflict may spill out beyond its borders. If the conflict spreads, it could threaten the supplies of out of both Iraq and Iran and the Strait of Hormuz. An outbreak of a full-scale attack on the nation could lead to a disruption in oil supplies via the Mediterranean Sea and send the oil prices soaring to astronomical levels. An estimated 17 million barrels pass through the Strait of Hormuz, making it the busiest passageway for oil tankers in the world. Around 250-300 oil tankers are crossing the Mediterranean Sea every day.

Source: Hindustan Times
India imports 78 per cent of its oil needs. Oil comprises 32 per cent of its import bill. It is the worst possible time for India for crude prices to rise, given that the rupee continues to plummet downwards, markets are crashing and there is already gloom all around. Although markets seem to have found some cheer in the last 2 days.
While some oil analysts fear that an attack on Syria might send oil prices shooting up to $150 a barrel on the Brent scale, like other emerging economies, India too is keeping its fingers crossed, perhaps a little more tightly than some others, hoping the predictions goes wrong. If the oil prices go up, at the domestic level the costs of petrol, diesel and LPG will go through the roof. This could lead to another spell of inflation in the country.
While the Syrian crisis can certainly affect India, there is a lot to be done at the domestic level for India to ensure that economy stabilizes. International events may not be in our control but we can take necessary steps at domestic level to improve the state of ecomony.
Data Source: BBC News, Washington Post and First Post
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