NEW DELHI – Prominent economists Neelkanth Mishra and Dr. Sajjid Chinoy have issued a stark warning regarding the potential for severe global oil shortages, attributing the risk to rising geopolitical tensions and disruptions in supply chains. Speaking at Groww’s India Investor Festival, they highlighted that while India stands in a relatively stronger position compared to many nations, sustained energy disruptions could still trigger significant economic stress globally.
Impending Hard Shortages and Inventory Declines
Neelkanth Mishra, Chief Economist at Axis Bank and Head of Global Research at Axis Capital, emphasized the proximity of a critical juncture for the global economy. “We are weeks away from really hard shortages,” Mishra stated, predicting a significantly negative impact over the next year if the current crisis persists. He noted that despite some recent easing of physical oil market pressures, the situation remains fragile.
Mishra pointed to sharply declining inventories across key markets, coinciding with an anticipated seasonal surge in fuel demand. He cited significant drops in European jet fuel inventories and shrinking bunker fuel stocks in Singapore. Should supply disruptions continue, sectors such as tourism, aviation, and industrial production face substantial damage.
India’s Relative Resilience Amidst the Crisis
Despite the grim global outlook, Mishra acknowledged India’s effective strategies in mitigating some of the immediate impacts. He praised India’s approach to energy procurement and ensuring fertilizer availability, attributing this success to the nation’s scale and strategic policy interventions. India’s capacity to subsidize and secure critical imports has offered better protection for its domestic agriculture and energy supplies compared to many smaller economies struggling to afford such measures.
The Scale of the Oil Shock and Future Risks
Dr. Sajjid Chinoy, Managing Director and Chief India Economist at JP Morgan, characterized the current energy disruption as one of the largest the industry has ever faced, with an estimated 13.5 million barrels currently offline. While initial impacts have been partially contained through inventory drawdowns, Chinoy cautioned that this strategy is unsustainable. “You can do this for another four or six or eight weeks, but at some point inventories will hit their operational minimum,” he warned, indicating that physical shortages would then become unavoidable.
Chinoy also highlighted the enduring damage that prolonged energy shortages could inflict on small businesses and overall economic activity. He explained that many small enterprises forced to shut down due to lack of energy might not reopen even after supplies are restored.
External Vulnerabilities and Policy Responses
Both economists concurred that India’s external sector, particularly its reliance on oil imports and susceptibility to capital flows, remains a key vulnerability. However, they also agreed that India benefits from strong domestic demand, fiscal flexibility, and a responsive policy framework, providing a more robust starting position than many other emerging economies confronting similar energy shocks. The crisis, they suggested, might also serve as a catalyst for governments worldwide to accelerate structural reforms, diversify energy sources, and bolster supply-chain resilience strategies.