Name: JPMorgan Economist Sajjid Chinoy on India’s Biggest Dangers from an Extended Iran Conflict
Uploaded: 2026-03-06T21:32:24.000Z
Duration: 8 min 11 s
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I mean, given what we're seeing in the markets right now, a reassessment of risk and perhaps this war could be longer than you think.

I think there's enough buffers that the global economy has to get through a week or two weeks.

If this were to go on for weeks and months, then of course it represents a big macro shock.

I think the key constraint in the near term or the binding constraint is going to be storage facilities in each of these oil producers.

It's because once you hit the storage constraint, that production begins to shut down.

And then when production shuts down, then you have a longer impact on higher global oil prices.

We shouldn't forget that before the conflict started, the crude market was in a structural excess supply.

Our estimate was crude would go to $60 or below this year in an environment where growth is quite strong.

So we're seeing a large geopolitical risk premium.

And so if this were to abate in a few weeks, even, we expect by the second half of the year, crude goes back the gravitational forces again back to 60 or 65.

So the duration, the key here is how long will this continue in the medium term and more importantly in the near term when the storage become a binding constraint in different countries.

For some countries it's four days, for some countries it's 15 days.

This could become nonlinear quite quickly.

Trump has already said four to five weeks.

I mean, at what stage, at what duration would you be worried?

I'd worry if we go beyond two weeks from a.

Purely from a market, from an oil price market.

So this is going to present a shock to the region for sure.

You know, in terms of remittances, in terms of, you know, tourism.

The question is, does this proliferate to the broader economy and the transmission mechanism from the Middle east to the global economy is oil prices.

So 15 day, you know, 15 days from now, if there is no let up in things and you start getting very sharp increases in production cuts, then the lingering effect on oil prices even beyond when this conflict ends will be longer.

And I think therefore the next two or three weeks becomes really crucial.

You talk about how it depends on countries and the buffers that they have.

What would it take for this to impact the world, for it to be, to be leading to a global inflation issue?

Yeah, I think that will take, you know, crude going up into triple digits and it's not just going up on impact, right?

I think the key is it's not so much the price, it's the price times how long it stays there.

If it stays there for a week, week, the world can get through this.

If it stays there for several months, then there are different impacts.

First is you get a purchasing power squeeze on households because inflation will go up and then central banks would be much less inclined to look through the shock because it won't be a matter of a few days or a few weeks.

They'll worry that this will affect inflation expectations.

So I think, you know, once you get past a few weeks of oil remains elevated for several weeks or months, then we get into this having an impact on global growth.

The good thing about Asia cinder where we're sitting is the starting points are quite favorable.

Inflation in this region has been very benign, right?

Almost too benign in some countries that core inflation is too low, reflecting slack in the region.

Part of this is because Chinese disinflationary forces in Asia now that's a good thing because when inflation is much below target, central banks have a little bit of room to work with before crude pushes inflation up a B.

Even current accounts and external imbalances, which is the other area this will impact, right?

If you're a current account surplus kind of account deficit country, are in much better shape.

You look at the North Asian economies, Korea's and Taiwan's, they've had surging tech exports, right?

So the current account surplus is very large.

If it means higher net crude imports, means higher LNG imports, you've got buffers to work with.

India and Indonesia, both current account deficit economies.

India's current account deficit less than 1% of GDP.

So the starting points at least for Asia, both from external imbalances and inflation is quite favorable.

Inflation is benign precisely because oil has been pretty cheap.

And you talk about the buffer, how much buffer?

If oil remains sustained at 90 bucks a barrel, which is possible, of course that's going to matter.

But I think inflation has been benign beyond just oil pricing.

The second is on goods prices, fine goods prices.

China has imposed a large disinflationary impact on the rest of the region.

And the fact is many of these Asian economies have not caught up to their pre pandemic but which means they're slack.

And that's meant inflation has been has been low.

But you're right, if oil is at 90 for several weeks and months.

Of course we have a problem, but we've got a long way to go before we get there.

And China, how far can China provide that buffer?

We know that China has enough capacity of oil to last, I think weeks.

If it's stable in China, it could be relatively stable for the.

There are buffers that different countries in Asia have.

You know, there's some thought that will Asia be more reliant on Russian crude?

Will that be a possibility going forward if physical crude can't move from the Strait foremost towards Asia?

I think the question is for a few weeks you can juggle around the pieces.

If those, if this goes beyond a month, then we're talking about meaningful production cuts and countries getting impacted.

So I think the next three or four weeks becomes really important.

Well, India is a very large oil importer and so yes, mechanically the impact on the current account deficit is large.

India's current account deficit, a sustainable level, is considered about 2 1/2% of GDP.

We're going to end this year at below 1% of GDP, number one.

And most of all, there's a huge stockpile of foreign exchange reserves.

So I think the broader issue is after 2013, emerging markets have been working systematically to improve macro frameworks.

Precisely because we're in this shock prone environment where, you know, one shock hasn't abated and another one's upon us.

And the shock that could come next is a very strong dollar.

We're already seeing some unraveling of the Asian currency.

We've had central banks having to step in, intervene and prop up their own currencies.

But the worry, as you said, is if this goes on for longer and you get correlated shocks.

Crude goes up, there's uncertainty, risk of inflation, gold goes up because many countries import gold as well.

And both are up, both are up and both affect the current accounts of if you're a current account deficit economy like India, it affects your current account and then you're relying on capital flows to finance the current account.

But if the dollar is stronger, then those capital flows are also questionable.

So this is where buffers matter and this is where good macro frameworks matter.