Crisis Management, Why India Needs a Comprehensive Inventory Policy to Weather the Middle East Storm
The Middle East crisis that erupted at the end of February has introduced a level of uncertainty far more severe than any other geopolitical event in the recent past. As the conflict completes its second week, no one can confidently predict its duration—whether it will last days, weeks, or months. For India, a nation with deep economic and diplomatic ties to the region and a profound commitment to a foreign policy of peace with dignity and multi-pluralism, this crisis represents a severe and multi-faceted threat. The comfortable economic projections made just weeks ago are now under a dark cloud, and the country’s ability to navigate this turbulence will depend on the strategic choices made in the coming days.
One of the most immediate and unavoidable consequences of the crisis is the impact on global energy markets. Prices of crude oil, the lifeblood of the Indian economy, are already climbing and will inevitably trigger inflation, both actual and expected. This should worry policymakers in New Delhi, as it threatens to completely disrupt the growth and inflation projections for the fiscal year 2026-27 that were outlined in the Union Budget just last month. The central question is one of timing and strategy: should India immediately reset its economic projections based on the current uncertainty, or should it adopt a “wait and watch” approach, allowing the situation to crystallise further?
The best available option, for the moment, is to wait and watch for the oft-mentioned price of oil to spike to $100 a barrel, and perhaps even to $150. This is not a scenario the world has not experienced before. In fact, global markets have seen Brent Crude, the international benchmark, trade at over $100 per barrel in at least seven calendar years since the global financial crisis of 2008. In a majority of those years, the primary cause of such dramatic price spikes involved the same volatile mix of geopolitics involving Iran and its global adversaries. History may not repeat itself, but it often rhymes.
However, while the price of oil captures the headlines, the far more insidious and potentially damaging challenge for India lies in the realm of supply disruptions. The country’s vulnerability extends far beyond energy. A prolonged conflict in West Asia threatens the steady flow of a wide range of critical commodities. This includes not just oil, but also critical minerals essential for the green transition, steel for infrastructure, electronic goods, semiconductors, batteries for the electric vehicle revolution, and even essential food items like edible oils and pulses, a significant portion of which are imported from the region.
Identifying these vulnerable commodities is not a serious challenge in itself. A detailed list can be drawn up by any competent economic ministry. What is far more worrisome, and what should be keeping policymakers awake at night, is the question of how to build up adequate inventories of these commodities in case the crisis stretches for three to six months or more. Superimposed on this already complex logistical and financial challenge is the need for building up inventories of critical defence equipment. In a volatile neighbourhood, a prolonged regional war could trigger hostile activities from those not well disposed to the country. India’s defence preparedness would require adequate stocks of radars, missiles, and, most critically in modern warfare, drones.
By most accounts, India does not have a sound, well-tested, and comprehensive inventory policy designed to take care of such profound and multi-dimensional uncertainty. The response to date has been largely ad hoc, reactive, and focused on immediate crisis management rather than long-term strategic stockpiling. The trade deals that have been painstakingly concluded with some countries and with the European Union could certainly help in procuring the required commodities, at a price. But this raises a cascade of further, unanswered questions. Will these deals be enough to take care of the enormous inventory costs that would be required to build a six-month buffer? Who will bear these costs—the central government, state governments, public sector undertakings, or the private sector? Should the government first construct a base scenario of maintaining inventories that would last for at least six months, and then build up more detailed scenarios as new developments emerge? As of now, there are no clear, publicly articulated answers to these fundamental questions. And the opportunity costs of inaction, or of delayed decisions, could be staggeringly high. Every day of delay is a day when prices could spike higher and supplies become tighter.
The authorities must resist the twin temptations of treating the crisis lightly and tinkering with the overall situation of supply of goods and services in an ad hoc, piecemeal manner. At the same time, they should not hurry to formally reset the economic projections that were made with such confidence in February. A premature reset could become a self-fulfilling prophecy, creating panic and exacerbating the very volatilities it seeks to manage. Instead, the need of the hour is to work out a coordinated set of fiscal, monetary, and governance strategies that necessarily involve a bold reform agenda, all aimed at achieving the originally projected numbers.
This is the only way to influence the expectations of the millions of economic units across the country—households worrying about their monthly budget, corporates planning investments, small and informal enterprises struggling to survive, and government entities at all levels—towards achieving the set national goals. Confidence is a fragile commodity in times of crisis, and it must be carefully nurtured.
This does not mean, however, that there will be no volatility. That would be an impossible and unrealistic goal. The uncertainties at the global level are so sharp, so multi-faceted, that none of the key economic variables—interest rates, domestic liquidity, exchange rates of major currencies, the price of gold and other precious goods, stock market indices, or fiscal receipts—can be pre-determined with any accuracy. Volatilities are not a sign of policy failure; they are a fact of life in a turbulent world. The task, therefore, is not to eliminate them, but to manage them through coordinated, well-communicated, and credible strategies for policy action.
What is most important is to ensure that all tiers of government—the Centre and all the States—are fully committed to the difficult tasks that lie ahead. The Centre must take the initiative immediately, convening meetings, building consensus, and formulating a clear, transparent, and actionable plan. This is not a time for political point-scoring or bureaucratic turf wars. It is a time for national unity and coordinated action.
Hopefully, the immediate and visible crises—such as the looming scarcity of cooking gas cylinders for millions of households and the potential shortage of fertilizers for the upcoming kharif season—will not overwhelm the governance mechanisms at all tiers. These are the most direct and pressing concerns of commercial kitchens, ordinary families, and the nation’s farmers. If these basic needs are not met, public anger could quickly spiral and disrupt the broader commitment to the current macro policy framework. The government must prioritize these essentials, ensuring that supply lines are maintained and that the most vulnerable are protected from the worst of the price shocks. The Middle East crisis is a stress test for India’s economic resilience and its policy machinery. The coming weeks will reveal whether the country has learned the lessons of past crises and built the institutional capacity to weather the storm.
Questions and Answers
Q1: What is the most immediate economic consequence of the Middle East crisis for India?
A1: The most immediate consequence is the impact on global energy markets, with crude oil prices spiking. This will trigger inflation and disrupt the growth and inflation projections for the fiscal year 2026-27 that were made in the Union Budget.
Q2: Beyond oil, what other critical supply disruptions should India be worried about?
A2: India should be equally worried about supply disruptions for a wide range of critical commodities, including critical minerals, steel, electronic goods, semiconductors, batteries, edible oils, and pulses. A prolonged conflict could choke off the supply of these essential goods.
Q3: What is the fundamental policy gap that the crisis has exposed?
A3: The crisis has exposed the fact that India does not have a “sound, well-tested, and comprehensive inventory policy” to deal with such profound uncertainty. There are no clear answers on how to build six-month inventories, who will bear the massive costs, or what the base scenario should be.
Q4: According to the article, how should the government manage economic expectations amidst the volatility?
A4: The government should not prematurely reset its economic projections, as that could create panic. Instead, it should work out coordinated fiscal, monetary, and governance strategies (including reforms) to achieve the projected numbers, thereby influencing the expectations of households, corporates, and other economic units towards the set goals.
Q5: What are the most urgent, day-to-day concerns that the government must prioritize to maintain public confidence?
A5: The government must prioritize the immediate concerns of citizens, including the looming scarcity of cooking gas cylinders for households and potential shortages of fertilizers for farmers. Failure to manage these basic needs could lead to public anger and disrupt the broader economic policy framework.
