During an interview with CNBC-TV18, Vishrut Rana, Senior Economist for Asia Pacific at S&P Global Ratings, stated that the primary risk arises from uncertainty surrounding energy supply, especially for economies like India that heavily rely on imports.
“The escalating uncertainty in the energy sector poses a risk not only for the Indian economy but also for several energy-importing countries in Asia,” he remarked.
This evaluation comes on the heels of the US extending its ceasefire with Iran indefinitely, just a day before it was set to expire, while a new round of discussions in Pakistan has been suspended. US President Donald Trump suggested that negotiations may resume soon, although tensions remain high with the naval blockade at the Strait of Hormuz still enforced.
Iran has labeled the blockade as a breach of the ceasefire and has issued warnings of retaliation, amidst reports of cargo ships being seized in the Strait. The escalation in the area has already caused crude oil prices to approach the $100 per barrel mark, raising fears about inflation and growth.
Rana highlighted that interruptions in energy supply chains could have a direct effect on economic activity. “The main risk comes from disruptions in energy supply… meaning that intended activities do not take place,” he noted, indicating reduced movement of goods and people as a critical transmission channel.
S&P is currently assessing various scenarios, with the most severe involving extended interruptions in energy supply that could markedly decrease economic activity across Asia-Pacific nations dependent on imported crude.
A more moderate scenario would witness sustained high energy prices for a time while supplies slowly return to normal, leading to “pressure on current accounts, significant inflation increases, and fiscal challenges as governments intervene to assist local consumers,” Rana explained.
Despite these concerns, S&P does not anticipate an immediate global recession. Rana emphasized that the global economy today is better equipped to manage these challenges than in previous oil shocks due to increased diversification in energy sources. Nevertheless, he warned that high-frequency indicators are already indicating stress. “We are witnessing disruptions… with rising energy and input costs, and this could continue,” he mentioned.
On the potential positive side, any progress in US-Iran negotiations could alleviate uncertainty, though the economic benefits may not be seen right away.
“I do not foresee any immediate benefits for the global economy merely from the reopening of the Strait, but it certainly represents a positive development,” Rana stated, adding that enhanced confidence could stimulate spending and stabilize expectations.
He further observed that if tensions decrease, the global economy—especially in the Asia-Pacific region—might return to the relatively robust growth path seen earlier this year.
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Rana also pointed out the repercussions for labor markets, especially those dependent on migrant workers. While remote work has bolstered resilience in some sectors, recovery in labor mobility is expected to take longer. “Human flows are likely to be the last to recover once goods flows resume,” he added.
With geopolitical uncertainties lingering and energy markets remaining fragile, the growth trajectory will heavily depend on how swiftly stability can be restored in the region.
