NEW DELHI: As war clouds gather over West Asia once again, govt seems better prepared with energy and fertiliser stocks, but higher oil prices will hurt the currency and deficit levels, apart from foreign portfolio investment, which is already under strain.
Besides, the already-elevated freight rates — nearly 10 times the pre-war level on certain routes — will spike further as insurance premiums rise in an environment when finding vessels and crew to go into the Strait of Hormuz is often difficult. This will have an impact on exports as well as the entire supply chain when container shortages are seen in the eastern hemisphere, along with port congestion in certain parts of the world.
On Oct 22, the Drewry World Container Index was at $4,585 for a 40-feet container, compared with $1,746 on Oct 25, 2025.
“It is already pushing freight rates beyond a point. Right now, buyers are managing because they were short of inventory. Now, that they are stocked up, it is unclear if they can absorb higher freight. Fresh disruption in West Asia will have an adverse impact for rest of the world too,” said Ajai Sahay, director general at Fieo.
He said container rates to West Asian ports have shot up from $800 to $8,000 to $10,000 now.
“The East-West container freight market remains uncertain. Security risks and attacks on ships continue to affect vessel movements through the Gulf, with only two containerships sailing into the Gulf in Week 42, down from five the previous week. Meanwhile, sailings through the Suez Canal increased slightly, from 54 in Week 41 to 55 in Week 42,” Drewry said.
There are also concerns over crew and vessels entering the Strait of Hormuz, which has emerged as the epicentre of the conflict. In any case, most businesses reckon that any uncertainty, especially a war that has implications on global energy supplies, is best avoided.
Oil is the biggest concern with crude price for Indian refiners averaging $120 a barrel in Oct, the highest monthly average in 12 years. And, with petrol averaging $140 a barrel and diesel at over $154, the pressure on state-run retailers in mounting as they incur losses, given that pump prices are linked to the import price of the product.
Although govt had shielded them through duty cuts and permission to raise prices subsequently, the Centre has limited headroom for fiscal concessions. Already, fuel and fertiliser subsidies are well past last year’s level and it will have to provide extra, if the need arises.
For the moment, top officials said, fertiliser companies took advantage of a falling price window to stock up for the next season and the fertiliser ministry had some surplus cash with it due to the savings.
There is some cushion for the Centre due to higher-than-budgeted disinvestment receipts and dividends from state-run financial institutions and RBI, with tax collections holding up so far, which is expected to keep the fiscal deficit within the target of 4.3% of GDP. But, a spike in the import bill due to higher commodity prices will have impact on the trade deficit and the current account deficit. And, a weaker rupee will make it less attractive for foreign funds to invest in Indian stocks.