What foreign policy has to do with financial constraints, Pg14

Key Highlights:

• Tensions between the US, Israel, and Iran tested India's foreign policy neutrality in early 2026.
• India's crude oil imports from Russia decreased to 21% by January 2026 due to US pressure.
• India increased oil imports from the US and Saudi Arabia, despite higher costs.
• LPG prices in India rose by Rs 60 per cylinder in March 2026 due to global supply disruptions.
• The Indian rupee depreciated to Rs 92.63 per dollar in mid-March 2026.

Detailed Insights:

• India's shift towards the US-Israel axis was driven by trade exposure, macroeconomic stability concerns, and defense dependencies.
• The US accounts for nearly one-fifth of India's exports, making it vulnerable to US tariff policies.
• India's reliance on a dollar-centric financial system makes it susceptible to capital flight and currency weakening during oil price shocks.
• Disruptions in the Strait of Hormuz, impacted Indian shipping and energy security due to its alignment with Israel.
• The Reserve Bank of India deployed nearly $20 billion in reserves to stabilize the rupee.
• Portfolio outflows of $6-8 billion exacerbated the economic impact, creating a cycle of higher deficits and inflation.
• India relies on imports for 85-87% of its crude oil and about 50% of its LNG, making it vulnerable to external shocks.

Key Concepts Involved:

• Current Account Deficit: The shortfall when a country's import of goods, services, and capital is more than its export.
• Geopolitical Signaling: Actions taken by a country to communicate its strategic intentions to other nations.
• Portfolio Outflows: The movement of investments out of a country's financial markets by foreign investors.