‘India better positioned than many during energy shock, but…’: Economists on oil risks

India is relatively better placed than several global economies to manage the ongoing energy shock. However, prolonged oil shortages could still significantly hurt global growth and trigger deeper economic disruptions, economists Neelkanth Mishra and Dr Sajjid Chinoy said during a macroeconomic discussion at Groww’s India Investor Festival.

The discussion focused on rising geopolitical tensions, energy supply disruptions, oil prices, currency pressures and the broader impact on the global economy.

Hard shortages

Neelkanth Mishra, Chief Economist at Axis Bank and Head of Global Research at Axis Capital, warned that the global economy could face severe supply disruptions if the ongoing crisis persists for several more weeks.

“We are weeks away from really hard shortages, which will have a significantly negative impact on the global economy over the next year,” Mishra said.

He noted that although physical oil market pressures had eased slightly in recent days, the situation remained fragile.

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“The oil market is already starting to believe that the physical shortage of oil is mostly behind us. Now I’m not saying the problem is solved and that we are totally out of the woods yet,” he said.

Mishra pointed out that inventories across major markets have fallen sharply, while seasonal fuel demand is beginning to rise.
“European jet fuel inventories are down sharply, bunker fuel inventory in Singapore has been shrinking, and we are just about hitting the seasonal pickup in flights,” he said.

According to him, if supply disruptions continue, sectors such as tourism, aviation and industrial production could see substantial damage.

Smaller economies

Despite the risks, Mishra said India’s scale and policy interventions have helped cushion some of the impact. “India has done a good job,” he said, referring to energy procurement and fertilizer availability.

He explained that India’s ability to subsidise and secure critical imports has protected domestic agriculture and energy supplies better than many smaller nations.

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“India, because of bidding and because government support is happening, at least the Kharif season doesn’t seem to be badly affected,” Mishra said.

He contrasted this with countries unable to subsidise fertilizer or energy imports effectively.

“The farmers in countries that cannot subsidise are the worst hit,” he added.

Global economic risks

Dr. Sajjid Chinoy, Managing Director and Chief India Economist at JP Morgan, said the scale of the current energy disruption is among the largest the industry has faced.
“There are 13.5 million barrels that are offline. That is the largest oil shock of the industry,” Chinoy said.

He explained that the immediate impact has been partly contained through inventory drawdowns, but warned this cannot continue indefinitely. “You can do this for another four or six or eight weeks, but at some point inventories will hit their operational minimum and then you actually see physical shortages,” he said.

Chinoy warned that shortages in fuel and energy could permanently damage small businesses and economic activity.

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“When a small business shuts down because of lack of energy or LPG, two months later even when supplies are restored, it doesn’t open back up,” he said.

Rupee and external sector

Chinoy also noted that India’s key vulnerability remains the external sector, particularly oil imports and capital flows.
“The weakest link for some time has been the external sector,” he said.

However, both economists agreed that India’s relatively strong domestic demand, fiscal flexibility and policy response provide a stronger starting position than many emerging economies facing the same energy shock.

They also said the current crisis could push governments globally to accelerate structural reforms, energy diversification and supply-chain resilience strategies.

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