For several days, tensions between India and Pakistan have been dangerously escalating. This renewed confrontation between the two South Asian nuclear powers is raising serious concerns, not only geostrategically, but also for the global economy.
A Direct Impact on Financial Markets
As tensions mount, the stock markets of both countries are experiencing increased volatility. Both the Indian rupee and the Pakistani rupee have lost value against the dollar, fueling regional currency instability. This nervousness is spreading to emerging markets, affecting global portfolios exposed to South Asian assets.
International investors, fearing a widening of the conflict, are adopting a strategy of retreating to safe-haven assets: gold, the US dollar, and US government bonds are seeing increased demand. Conversely, assets considered riskier, such as emerging market equities and exotic currencies, are experiencing downward pressure.
Disruptions in supply chains
India and Pakistan play key roles in several global supply chains. India, the world’s fifth-largest economy, is a major player in the technology, textile, and pharmaceutical sectors. Pakistan, for its part, is a major supplier of cotton and textiles.
A prolonged conflict could lead to logistical disruptions, particularly through the blockage of certain strategic trade routes. The ports of Karachi (Pakistan) and Mumbai (India) are essential hubs for the export of goods to Europe, Southeast Asia, and Africa. An interruption in these flows would have knock-on effects on global prices and the availability of certain manufactured goods.
Energy Risks and Rising Oil Prices
Although neither India nor Pakistan are major energy producers, their strategic location near the Middle East, the world’s largest oil supplier, poses a risk to energy supply routes. Any military escalation could threaten shipping in the Indian Ocean, increasing the cost of marine insurance and slowing oil deliveries.
As a result, crude oil prices have already shown signs of rising, fueling fears of imported inflation in many economies, particularly in Europe and Asia.
Challenges for Global Growth
In an already fragile economic environment marked by high interest rates and multiple political tensions, an open crisis between India and Pakistan would represent an additional shock. According to several analysts, a prolonged war could cost between 0.2 and 0.5 percentage points of global GDP growth, depending on its intensity and duration.
Emerging countries would be the first to be affected, with an expected decline in foreign direct investment (FDI) flows and higher financing costs. Even major advanced economies, through rising energy prices and a deteriorating business climate, would not be spared.
A crisis to monitor closely
The crisis between India and Pakistan extends well beyond the regional framework. Its potential impact on markets, energy, supply chains, and global growth makes it a major issue. While international diplomacy attempts to ease tensions, economic players remain on alert, aware that stability in South Asia is essential to global economic stability.
