Agreement between America and Iran
India’s economy is expected to get relief from the announcement of peace agreement between America and Iran after more than three months of conflict. This will reduce energy costs, improve trade conditions and boost exports to West Asia. If successfully implemented, this agreement is expected to reduce pressure on India’s import bill, reduce inflation concerns and create a more favorable environment for economic growth.
This peace agreement is to be signed in Geneva on 19 June. America and Iran have agreed to end their 107-day-old conflict. The conflict disrupted global energy supplies, sent crude oil prices above $100 a barrel and raised concerns of a major regional crisis in West Asia.
Hope of relief for India’s energy dependence
According to economic think tank GTRI, for India – which is dependent on West Asia for crude oil, LPG and LNG supplies – the agreement could provide relief from the risks of rising energy prices, pressure on the rupee and increased inflation during the conflict. PTI quoted GTRI founder Ajay Srivastava as saying that the agreement brings immediate economic relief for India as the conflict has exposed India’s dependence on West Asia, from where it gets about 50 percent of its crude oil imports, about 70 percent of its LPG supply and about 90 percent of its LNG imports.
During the conflict, disruptions to shipping from the Gulf raised India’s energy import costs, increased inflationary pressures, weakened the rupee and forced refiners to seek supplies from distant markets. Srivastava said the reopening of the Strait of Hormuz will help stabilize the global energy market, reduce pressure on oil and gas prices, strengthen the rupee and support India’s economic outlook. Commerce Secretary Rajesh Aggarwal said that if the peace agreement remains in place and proves to be durable, then many trade related challenges can be reduced to a great extent.
India’s trade with Gulf countries
India’s major exports to GCC countries include engineering goods, refined petroleum products, food and agri products, cereals, rice, meat, seafood, gems and jewellery, chemicals, pharmaceuticals, textiles and machinery. The main imports from this region include crude oil, LNG, LPG, petrochemicals, fertilizers, plastics, aluminum and other mineral fuels.
Oil prices fell, market rose, rupee strengthened
Financial markets reacted positively to the announcement of US-Iran peace deal; Oil prices fell, equities improved and the rupee strengthened. Brent crude prices fell sharply as concerns about supply disruptions from the Strait of Hormuz eased. The price of Brent fell nearly 5 per cent to around $83-84 per barrel on June 15, its lowest level in almost three months, while earlier it was trading around $87 per barrel.
Lower oil prices reduced the pressure on India’s import bill, which strengthened the Indian rupee against the US dollar. The rupee strengthened 0.7 per cent in a single session on Monday, amid trimming of dollar long positions and expectations of improving external stability for India. It opened at 95.32, rose to a high of 94.95 during the day and finally closed at 95.11.
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