Oil To Water: Scarcity, The New Normal

From Oil Shocks To Water Limits, Scarcity Must Be The Norm

By Govindraj Ethiraj

The US missile strikes against Iran over the weekend, a direct response to the attack on an oil tanker in the Strait of Hormuz, have once again tested the fragile ceasefire.

Yet, in a testament to the resilience of the global economy, oil prices have remained muted, pulling back below $73, a level not seen since before the four-month conflict began.

This resilience invites a necessary audit of the last six years.

We have navigated the body blow of Covid-19, which effectively rewired global supply chains and permanently altered the nature of work.

While the "Zoom era" brought us the convenience of remote work, it also underscored the decline of productivity without the social cohesion of an office.

Looking back, one wonders: had the pandemic lasted four months instead of three years, would we have permanently abandoned the office, or would we have recognised the screen as a poor substitute for real-world collaboration?

It's not like the latest crisis did not help, following as it did, from the tariff war crisis, which hit economies around the world and caused more damage to businesses with the uncertainty rather than the actual flow of goods.

But the net result was that supply chains became even smarter, and the US economy, fueled by a massive AI investment boom, proved remarkably robust.

Even with layered supply shocks, the S&P Global report from last week suggests the US will maintain trend-like growth of 2.1% through 2026.

This resilience is no surprise; it is the natural outcome of substantial domestic energy production and lower energy intensity.

Populist Pricing, Real Costs

In India, the story is similar in its vigor but different in its risks.

The economy grew a robust 7.8% in the January-March quarter, driven by private investment and construction.

Yet, the government’s response to the West Asia conflict has been a study in the dangers of the "populist energy" model.

We have not achieved much in terms of moderating energy consumption because price signals were suppressed for months.

When the government delays price hikes, it does not prevent inflation; it often creates a black market.

The LPG shortage is the most visible byproduct.

By keeping the price of 14.2 kg cylinders artificially low while market costs soared, the government incentivised the diversion of supplies, in this case to commercial use.

Government officials, including elected representatives have offered half-hearted promises to reduce the size of ministerial convoys, but like most such displays, these gestures are being forgotten as quickly as they were announced.

The most pressing challenge, however, is not the price of oil, but the availability of water.

Scarcity As The New Baseline

The India Meteorological Department (IMD) says cumulative rainfall for the country between June 4 and June 28, 2026 stood at a 45% deficit.

Mumbai is now staring at 7% water levels in its primary lakes. The rains which made a brief appearance after a two week delay last week are awaited once again.

Unlike oil, which can be secured through global markets, water is a local necessity with no substitutes.

We may find ways to manage oil or gas supplies, but we cannot engineer our way out of a drought. Or only partly.

The lesson of the last four months is clear: whether it is energy or water, we are entering an era of greater scarcity.

The "scarcity mindset" must now shift from a crisis response to a baseline for future sustenance.

Individuals and organisations should stop waiting for state-directed solutions, which are often delayed and distortive, and start managing their own consumption with discipline.

The last four months may not have been as instructive as the previous crises of this decade, but they have provided a sound warning.

The year ahead promises to be the true test of whether we are capable of adapting to a world where resources are no longer guaranteed.

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Rs 88,768 crore

That's how much market-capitalisation six of India's 10 most-valued companies added last week as benchmark indices ended higher in a holiday-shortened trading week.

Origin: Improving investor sentiment, driven by expectations of supportive RBI policies and positive global cues, contributed. Strong buying in banking stocks further boosted the market.

Top gainers:

• ICICI Bank: Rs 29,589 crore

• HDFC Bank: Rs 24,718 crore

• State Bank of India: Rs 9,323 crore

Top laggards:

• Bharti Airtel: Lost Rs 35,615 crore

• Life Insurance Corporation of India: Lost Rs 21,189 crore

• Tata Consultancy Services: Lost Rs 11,144 crore

What's Next? Analysts expect markets to remain range-bound in the near term as investors track foreign institutional investor flows, quarterly earnings and global developments. Market participants will also watch inflation data, crude oil prices and any signals from the Reserve Bank of India on future interest-rate moves for clues on the market's direction.

Ceasefire Strained, Again

Following US strikes on Iran after a tanker carrying Qatari oil was hit in the Strait of Hormuz, Iran fired missiles and drones at US bases in Kuwait and Bahrain early Sunday, Reuters reported. Kuwait intercepted two missiles; Bahrain reported a residential building damaged, with no fatalities in either country.

Overview: The tit-for-tat attacks began Thursday when Iran struck a container ship, prompting US retaliation. President Trump warned that the US could be "forced to militarily complete the job" and that Iran "will no longer exist" if it doesn't honor the ceasefire, while Iran's Revolutionary Guards said the strikes would halt diplomatic talks, according to a Bloomberg report.

Setup: The violence strains this month's 14-point US-Iran interim peace deal, which aimed to reopen the Strait of Hormuz and enable talks on Iran's nuclear programme. Both sides blame each other for the breach, even as follow-up negotiations were expected to resume this week.

AI Compute Crunch

Meta has reportedly been relying on Google's Gemini artificial intelligence models to support some of its internal AI development, despite heavily promoting its own Llama family of models. But according to the Financial Times, Google has now limited Meta's access to Gemini as demand for computing power outpaces supply.

The Turning Point: Google reportedly told Meta earlier this year that it could not meet all of the social media giant's demand for Gemini capacity because of compute constraints. The shortage delayed some Meta projects and prompted the company to encourage employees to use AI resources more efficiently.

Future: The episode highlights a growing bottleneck in the AI race. Even the world's largest technology companies are struggling to secure enough chips, data centre capacity and electricity to power increasingly sophisticated AI systems. As demand continues to surge, access to computing infrastructure could become just as important as building cutting-edge AI models.

Liquor Drives Revenue

Indian states are increasingly leaning on liquor sales to shore up their finances, with excise collections surging in the first two months of the financial year, according to the Comptroller and Auditor General (CAG).

Fast Facts: Uttar Pradesh led the gains, collecting more than Rs 10,000 crore in April and May, while Haryana posted an 82% year-on-year jump in excise revenues. The increase reflects policy changes, higher licence fees, tighter enforcement and improved tax compliance rather than a sudden spike in alcohol consumption.

Pivot: Industry sources attribute this revenue surge to three main factors: a 14% growth in consumption, excise rate hikes by several State governments, and upward revisions in base prices by manufacturers. As GST 2.0 has curtailed states' ability to raise taxes elsewhere, alcohol has emerged as one of their most important sources of revenue.

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