West Asia conflict may impact semiconductor manufacturing, fertilisers and construction

Disruptions in the Gulf region could trigger shortages across multiple sectors globally. Supplies of helium, sulphur, methanol, and aluminium are at risk, potentially impacting industries ranging from semiconductor manufacturing to fertilisers and construction. Food security concerns may also rise as fertiliser supply chains face disruptions, leading to higher agricultural input costs, a report by DAM Capital Advisors said.

While crude oil availability may remain manageable in the near term, the supply of key petroleum products — such as LPG, naphtha, aviation turbine fuel (ATF), and gasoil — is expected to face significant pressure due to limited refining capacity, the report highlights. Natural gas markets are also likely to tighten, as the Gulf region accounts for over 20% of global LNG supply, leaving little room for alternative sourcing.

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For India, the macroeconomic impact could be significant if crude oil prices remain elevated. The report estimates that every $1 per barrel increase in crude prices could widen the fiscal deficit by Rs 100 billion. A sustained price above $80 per barrel may push inflation beyond 4.5% and weaken the rupee.

India’s heavy dependence on imports, particularly through the Strait of Hormuz, increases its vulnerability. Nearly 90% of LPG imports and over 50% of crude imports pass through the route, making supply chains susceptible to disruptions. While crude oil availability is considered manageable due to alternative sourcing and reserves, LPG availability remains critical due to limited inventories.

Upstream oil and gas companies may benefit from higher prices, while downstream firms, especially oil marketing companies, might face margin pressures due to limited ability to pass on costs. Airline profitability may suffer as fuel accounts for up to 40% of operating costs, while FMCG companies might face margin pressure from rising packaging costs.

Infrastructure and capital expenditure could also be affected, as higher oil prices strain government finances. Meanwhile, industries such as textiles, chemicals, and fertilisers may face input cost inflation and supply chain disruptions, although some could benefit from short-term inventory gains, the report said.

The report cautions that while short-term disruptions may be manageable, a prolonged conflict lasting beyond two months could lead to severe supply constraints, rising costs, and a broader economic slowdown, both globally and in India.