Buffering the blow: Policy responses amid the war

New Delhi's challenge is twofold: Safeguard macroeconomic stability in the near term and continue building deeper structural resilience for a more fragmented global geopolitical landscape

- Samiran Chakraborty

Since the current disruption has been more acute in natural gas, countries with a heavier gas dependency face significantly greater vulnerabilities.

(AP)

The West Asia conflict shows no signs of an immediate resolution even after over a month, leaving global markets preoccupied with three imponderables: How long the conflict will last, how severe it may become, and what the new normal might look like once it ends.

Much of the global commentary has focused on projecting oil price paths as a shorthand for these uncertainties. Yet the impact of this conflict extends well beyond energy prices. Its multidimensional nature has prompted countries to respond through varied strategies — administrative interventions, fiscal buffers, monetary adjustments, and, in some cases, simply relying on market-driven price adjustments.

Oil price shocks have repeatedly tested the world economy in the past. Real oil prices tripled during the 1973 crisis and doubled again in 1978-79. By contrast, the recent increase — roughly 50% — appears modest. Still, the International Energy Agency has described the current episode as “the largest supply disruption in the history of the global oil market.” Unlike earlier episodes driven primarily by price spikes, the present challenge stems from physical supply shortages in oil and, more critically, natural gas. This distinction between price-driven, and quantity-driven shocks is essential when drawing lessons from historical precedents.