The escalating conflict in the Middle East is not merely a geopolitical development but a structural stress test for India's risk management architecture. India's dependence on global energy markets, trade networks and financial systems has far-reaching implications. Asia Insurance Review spoke with Dr Sonjai Kumar, an Indian risk management professional.
Dr Kumar said, “The current scenario that has emerged over the last couple of months has not just increased risk but also transformed how risk must be understood, analysed, managed, and governed.
Impact on insurance market
Speaking about the conflict’s impact on Indian insurance market, Dr Kumar said, "One of the most significant impacts of the conflict is the increasing difficulty to get insurance coverage. However, where coverage is available, it comes at significantly higher premiums and with tighter exclusions.
“This is forcing organisations to reconsider their reliance on insurance as the primary risk transfer mechanism and to explore alternative routes such as captives, parametric solutions, and structured risk retention.”
He said several other lines of insurance business are also feeling the impact of the conflict. These would include travel insurance, marine, cargo, and political risk insurance.
Rising oil prices
A critical risk for India is energy-related, as the country is heavily dependent on imported crude oil that transits through the Strait of Hormuz, which has been choked due to geopolitical tensions. This has led to constrained supply and higher prices.
Speaking about the higher oil prices, Dr Kumar said, “An increase in oil prices affects not only macroeconomic factors but also corporate cost structures, inflation dynamics, and fiscal stability. Energy risk is coming as a source of systemic risk with cross-sector implications.
“Rising oil prices and geopolitical tensions are also driving capital outflows and putting pressure on the Indian rupee. Such an impact on the rupee increases hedging costs and introduces balance-sheet risks for corporations with foreign currency exposures.”
“Higher oil prices cascade through transportation, manufacturing, and services, creating broad-based cost pressures leading to stagflation, where growth slows even as inflation rises. This results in margin compression, pricing uncertainty, and demand volatility. Therefore, risk management must extend beyond operational controls to include macroeconomic scenario planning.”
He said, “The Indian government should proactively consider establishing a Ministry of Risk Management to foster a broader risk culture. Risk management is not a one-time activity; in the increasingly complex, uncertain world, risk scanning is required at all times."
Traditionally, risk management is implemented within the financial sectors such as banking, insurance and mutual funds; however, the present ME conflict has highlighted that risk management is not just for the financial sector but for entire corporations.
Dr Kumar said, “For Indian companies that are dependent on global supply chains, operational risks such as impacted supplies and shipping routes are affecting the companies’ operations. Rising freight costs and logistics delays are becoming more frequent.
“These introduce challenges that cannot be mitigated solely through traditional approaches. There is a need for diversification across suppliers, geographies, and logistics pathways as a part of a strategic shift. Strategic risk management must be integrated where there is a multi-dimensional impact. Hence, the need for a separate ministry to deal with these issues that impact the whole Indian industrial scenario.”
External sector
Dr Kumar said, “The external sector is also under pressure. Rising import bills, coupled with disruptions in export markets, are widening the current account deficit. This introduces additional risks at the national level, particularly regarding currency stability and capital flows.
“Another area is human capital and remittance risk. A significant number of Indian nationals work in the Gulf region, where a prolonged instability could affect employment, remittance flows, and impact domestic consumption patterns.”
Corporation-wide risk management
"A new paradigm centred on enterprise-wide risk management should be embedded within corporate strategy. For Indian institutions, the message is clear. Risk management must evolve from a compliance-driven function to a resilience-driven capability. This involves integrating risk into strategic planning, strengthening governance and oversight, investing in data infrastructure, and building organisational agility," Dr Kumar said.
This new approach would require a dedicated risk management function within all corporates, headed by a Chief Risk Officer. “This will help organisations look ahead through regular risk scanning and take mitigating actions, rather than relying on a one-time event or on insurance," said Dr Kumar.