Prolonged Iran conflict could trigger global recession, disrupt energy and supply chains: Neelkanth Mishra

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• Iran conflict disrupts 7 percent of global energy supply
• Prolonged conflict could risk 4-5 percent of world GDP
• India faces growth and inflation risks from higher oil prices

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Neelkanth Mishra, Chief Economist at Axis Bank and Head of Global Research at Axis Capital, said the ongoing Iran conflict is a critical macroeconomic development with far-reaching implications for India and the global economy.

Mishra, speaking on CNBC-TV18, reiterated that India’s reliance on imported energy remains a structural risk during geopolitical disruptions. “We import nearly 50 percent of our dense energy, and that's a big risk. And so that vulnerability does get exposed at these times,” he said, adding that elevated oil prices could lead to a one-time impact on growth, inflation and potentially require currency adjustment.

Mishra said the situation is serious but expectations remain that it may not persist for long. However, he raised concerns about how the conflict could evolve. “I don't expect it to last long… but the concern I have is that we are now… perhaps it will end only when the market panics,” he said, describing it as a “catch-22” scenario.

He outlined the dynamics of the conflict, where one side is focused on reducing military capability while the other is focused on survival. “For us, it is about survival… we will keep the state of war most blocked,” he said, pointing to the continued disruption of energy flows.

Recession risk if conflict prolongs

Mishra said around 7 percent of global energy supply is currently impacted. “If this lasts more than four weeks… the risk of a significant global recession is quite meaningful,” he said, while clarifying that the timeline refers to four additional weeks from the current stage of the conflict.

He detailed the scale of disruption across energy markets. “We have taken out 7 percent of world energy supply,” he said, explaining that a significant share of crude oil and natural gas flows are affected, particularly through critical routes such as the Strait of Hormuz.

While some substitution is underway, including shifts toward coal and adjustments in less critical economic activity, Mishra said only a limited portion of the disruption can be offset. He estimated that even after adjustments, a 4 percent to 5 percent impact on global GDP is at risk.

He pointed to emerging second-order effects across industries. Real estate companies are flagging project delays due to shortages of tiles, retail firms are slowing store expansion, and auto component manufacturers are facing difficulties sourcing carbon black. LNG shortages are beginning to affect parts of auto manufacturing, with potential implications for production.

He also cited signs of stress in labour markets, including workers exiting textile clusters due to fuel shortages. “The second order effects… can be quite…” he said, indicating the widening impact.

Mishra said current market behaviour reflects expectations that the disruption will be short-lived. Companies are relying on limited inventories, but these buffers are finite. “These inventories don't last forever… supply chain disruptions will get really extreme with every passing day,” he said.

He said financial market pressure may ultimately determine when the conflict ends. “The invading parties may only pull back if they see pressure from the financial markets,” he said, adding that if the situation does not ease by mid-April, markets could begin to react sharply.

Oil dynamics, war strategy and market Impact

On pricing dynamics, Mishra said oil markets are no longer driven by traditional cost-based frameworks. “Oil… pricing has to destroy demand,” he said, explaining that prices will rise until consumption declines. He added that shortages are already forcing weaker economies to cut fertilizer use, transportation and fuel consumption.

“If there's a 4 percent to 5 percent net energy supply problem, there is a 4 percent to 5 percent of world GDP which is at risk,” he said, describing the relationship as direct.

He warned that escalation risks remain high, including the possibility of errors in conflict zones involving missiles, aircraft or targeting systems. Such incidents could damage energy infrastructure and prolong disruptions. “Mistakes can be made… and those risks are high,” he said.

Mishra said a prolonged conflict would have non-linear effects on energy markets. A four-week disruption could take up to three months for oil prices to normalize, while a longer conflict could extend that adjustment period significantly.

He said the eventual resolution of the conflict could bring relief to markets and trigger the return of foreign investors. “The moment the war ends and oil prices start falling… there'll be a big relief and that would bring the FIIs back,” he said, though he added that these signals are not the most immediate concern.

He also placed the conflict within a broader global context. “This is a 15-20 year readjustment, which the world is likely to have to go through,” he said, referring to structural shifts in global trade, currency dynamics and supply chains.

Mishra said geopolitical strategies are increasingly focused on controlling key supply chain choke points, citing regions such as the Panama Canal, Venezuela, Cuba and the Strait of Hormuz. He added that economic and financial systems are becoming central to modern conflict.

“Wars are no longer going to be only fought on battlefronts… it could be fought in financial markets, in trade wars,” he said. He added that market pressure could ultimately shape the outcome of the conflict. “The markets coming under pressure is the important signal for this conflict to end,” he said.

Mishra said the duration and intensity of the disruption will determine the scale of its impact on global growth, markets and supply chains, with risks rising sharply if the conflict persists.