On Episode 823 of The Core Report, financial journalist Govindraj Ethiraj talks to Shankkar Aiyar, economic journalist, columnist and author.

SHOW NOTES

(00:00) The Take

(06:36) Markets set for another tough week as the US realises its an asymmetric war.

(13:50) Understanding the butterfly effect on the global economy.

(21:48) Malaysia has walked out of its trade deal with the United States. India should follow.

(23:51) Why Apple’s new macbook is its most unique offering ever.

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NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on feedback@thecore.in.

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Good morning, it's Monday, the 16th of March, and this is Govindraj Ethiraj, broadcasting and streaming weekdays from Mumbai, India's financial capital.

The Take

The air in our Mumbai office building on Friday took on a somewhat metallic and acrid scent. Over at the small canteen on our floor, the proprietor had quietly swapped out his empty gas cylinders for kerosene-fuelled pressure stubs.

Procuring a fresh cylinder has become an impossible task, particularly for people like him, forcing him to buy two pressure stubs at a steep premium in a bustling central Mumbai market just the day before. Then came the hunt for the fuel itself. Kerosene, traditionally sold through public distribution systems, or Russian shops as they're called, have largely vanished from major cities like Mumbai.

Kerosene carries a sticker price of about Rs. 61 a litre here, but in the thriving secondary market that sprouted almost immediately, the canteen owner paid about Rs. 110 or more per litre.

The kerosene keeps the fires literally burning in his tiny kitchen, but the stubs lack the efficiency required for peak lunch hour demand, to say nothing of the soot and smell now clinging to the walls. He's not alone in this scramble. According to a weekend report in the Indian Express, Great Punjab, a 66-year-old restaurant in central Mumbai, switched entirely to electric coil stubs.

The pivot is costly and clumsy. The owner spent over Rs. 50,000 on five new stubs and another Rs.

25,000 to rewire the kitchen. The head chef lamented that the began cooking once they turned red, doubling the preparation time for their chana gravy. When last heard, Great Punjab was hunting for more stubs in a market that had already been cleaned out.

To understand why Mumbai's iconic eateries and office canteens like ours are suddenly cooking over kerosene and electric coils, one must understand or look at India's acute macroeconomic dependence on liquefied petroleum gas, or LPG. The math is unforgiving. India consumes about 31 million tonnes of LPG and domestic production accounts for just 13 million tonnes.

The remaining 18 million tonnes are imported. Crucially, about 90% of those imported volumes flow through the state of Hormuz or via the Persian Gulf. In the era of geopolitical volatility, that equation alone explains the impossible odds India faces in bridging its sudden supply-demand gap.

Incidentally, India also imports about 90% of its crude oil requirements, of which about 30% now comes via the state of Hormuz versus about 50% before the war started. So, India has been calibrating or recalibrating furiously, including sourcing from about 40 countries now. But that imported vulnerability for gas has been exacerbated by a massive state-led demand surge.

There are about 330 million active domestic LPG consumers in India, and that figure has doubled in the last decade, supercharged by the government's flagship Pradhan Mantri Ujjwala Yojana or PMUY scheme, which accounts for about 100 million of these beneficiaries. Conversely, the commercial sector, restaurants, hotels, and small industries comprise only about 3 million registered users. Faced with a supply squeeze, the political calculus was inevitable.

Almost two weeks ago, the government issued a notification prioritising domestic household use over commercial enterprises. For a household, one cylinder may last a month or more, a restaurant burns through several cylinders in a single day. And that sudden rationing has left commercial kitchens across India instantly dry.

Interestingly, those reliant on piped natural gas or PNG have been largely shielded from the current panic, including homes and establishments in Mumbai and Delhi. Now, the divergence lies in the chemistry and the supply chain. LPG is a byproduct of the petroleum cracking process, a mixture of butane and propane yielded alongside petrol and diesel.

PNG, that's piped natural gas, on the other hand, is sourced directly from liquefied natural gas, which comes from oil wells. While India still imports roughly half its LNG, again mostly from the Persian Gulf and Qatar, the domestic buffer is stronger as only about 25% goes for domestic consumption, and so the government has proactively diverted supplies from industrial users to city gas distribution networks. And yet, weaning off the LPG cylinder is a monumental logistical hurdle.

The current system requires cylinders to be routed back and forth from over 210 bottling plants across the country, travelling atop fuel-guzzling trucks across thousands of towns and villages all year round. Expanding piped gas, particularly to rural areas, faces steep economic and logistical hurdles. Speaking to me two months ago, KK Chattival, Managing Director of Indraprastha Gas, India's largest city gas distributor and also state-owned, expressed confidence that rural piped gas distribution could eventually achieve economies of scale.

While pilot projects do show promise, a nationwide rollout will take time. And even if we have a handle on LNG supplies today, future guarantees in the global energy market are non-existent. Ultimately, it all boils down to demand calibration.

India must find newer ways to fuel its kitchens and power them. Solar energy offers an obvious long-term alternative for cooking and heating, thanks also to government rooftop solar schemes. But all of this may not work so easily, particularly solar energy in dense cities like Mumbai.

And of course, solar energy is already powering homes across the country. But policymakers are also caught in a classic catch-22. The very government subsidies that jacked up domestic LPG demand were a necessary public health intervention, moving millions of Indian women away from high-polluting, smoke-filled, wood-burning kitchens.

There is no easy policy fix that solves the import deficit, the logistics costs, and the public health imperative all at once. In the coming days, the market will likely stabilise as India manages to increase its LPG production or secure import workarounds as it already is. Until then, the owner of Great Punjab and the proprietor of my office canteen will do what Indian entrepreneurs have always done, that's rely on sheer ingenuity in the face of adversity to feed their mouths and their customers.

But as a nation looking towards long-term energy security, we must remember that forcing businesses to rely on makeshift solutions like kerosene stoves and electric coil heaters is a symptom of a fragile system. Ingenuity is admirable, it's not, however, a strategic choice.

And that brings us to the top stories and themes…

The stock markets are set for another tough week as America realises it's an asymmetric war.

Understanding the butterfly effect on the global economy.

Malaysia has walked out of its trade deal with the United States, India should follow.

And why Apple's new MacBook is its most unique offering ever.

Markets

In what appears to be what I would call the blinding insight of this century, the Wall Street Journal wrote over the weekend that the war in the Persian Gulf has become an asymmetric contest pitting the unrivalled conventional military might of the United States and Israel against an Iranian government waging a guerrilla fight to block oil shipments and upend the global economy. Now, the global economy, of course, includes India too, with far-reaching economic damage because of industrial shutdowns and loss of livelihoods because of gas shortages, the computation of all of which will take months, if not years. And it's just two weeks into the war.

And the Wall Street Journal says quite sagely that the past century has shown that even the world's largest and most modern militaries can be humbled when attacking tenacious adversaries willing to endure more pain to defend their territory despite overwhelming odds. And of course, one wishes that all of this realisation had dawned on the United States at large much earlier, or at least two weeks ago. And this also tells you that in fighting this war, the United States is concerned about the United States only and whether you have gas in your home or a job day after is not America's concern, not in the least.

So, the stock markets continue to look weak going into another week, though there is some positive news on India managing to get gas supplies via the Strait of Hormuz after engaging with the Iranian government. That's obviously good news, including from a geopolitical standpoint, but this is unlikely to fundamentally alter the weak sentiment in global markets, which has washed over to the Indian markets as well. Because while India is facing gas shortages, oil supplies are so far fine, and oil companies are working all their sources, over 40 of them, countries, to procure crude oil.

The only problem, of course, is the price of it, which at around $90 a barrel portends to much pain ahead. And thus, the markets will still look at this figure as they wade through the week and the third week of the Iran war. On Friday, the Nifty 50 was down almost 2% at 488 points to 23,151, and the Sensex was down about 1,460 points to 74,563.

The indices, as you can see, particularly the Sensex and Nifty, are sinking steadily now, and perhaps will continue to do so as the damage caused by this war spreads, and the economic effects and the cascading economic effects are also felt. The Nifty India volatility index jumped about 6.3% to 23 on Friday, and is at about 22.6 now, according to the business standard. The broader markets were also down on Friday.

The Nifty mid-cap and small-cap indices were down 2.6% and 2.5% each. Now, several companies will see production hits because of gas shortages, which could hurt earnings at some point, though it's not clear, at least to me, what the precise impact is, but I'm sure analysts will work that out in the coming week. Reuters, for instance, reported aluminium major Hindalco Industries saying it has stopped output of extruded aluminium, a value-added aluminium product, thanks to gas shortages in the wake of supply disruptions in West Asia.

The Aditya Birla Group-owned company declared force measure to all its extruded aluminium customers on March 11, the notice showed. There will be other companies, for instance, the fertiliser companies, refineries and petrochemicals, iron and steel, ceramics and glass, and of course power plants feeding automobile factories, which all extensively use gas. And the impact of all of this, or the combined impact, or the distributed impact of all of this, will take a few days to compute, but I'm sure it will.

Oil Supply Chain Recalibration

There are developments all the time in West Asia, including periodic attacks on oil installations and ports like the UAE's Fujairah port, a major global hub for refuelling ships, as well as crude and fuel exports, where operations were suspended after a drone attack and fire on Saturday. A Reuters report pointed out that the port is located on the Gulf of Oman, approximately 70 nautical miles from the state of Hormuz, which is effectively closed now, increasing the importance of Fujairah's flows to the global market during the current conflict. The United Arab Emirates, which before the war began, produced more than 3.4 million barrels of crude, operate a 1.5 million barrels per day pipeline that can transport some crude to bypass the state of Hormuz.

So the Abu Dhabi crude oil pipeline, or the ADCOP, also known as the Habshan-Fujairah pipeline, transports oil from Abu Dhabi's fields to Fujairah. The port loads the UAE crude grade Morban, sold mostly to buyers in Asia. Now, all of this, the logistics part, is obviously useful to know because it tells you how logistics is being run at these times and the routing and rerouting, including the oil rerouting that we saw or are seeing in Saudi Arabia, going from east to west, and now embarking on ships from the Red Sea.

The Reuters report also says that the Hormuz largely shut to export, significant disruption that Fujairah would force the Organisation of Petroleum Exporting Countries, third largest crude producer, to shut down more production. All of this also highlights the challenge of procuring both oil and gas, the costs and logistics of which will rise even if we are able to meet demand. So it's back to the price of oil, which we have to watch very closely, and analysts are already predicting a higher price starting this week.

On the other hand, most of the West Asian airlines like Emirates, Etihad and Qatar Airways have resumed operations, though not on full schedules, yet some Indian airlines, including Air India, are flying limited flights. It's likely that those who have either wanted to leave West Asia or wanted to get there would have done so by now. The challenge is really to future traffic to these destinations or transits through them, including tourists.

And that's where the economic damage will start to be felt in coming days and weeks, both for Indian airlines as also the tourism industry in West Asia and to some extent India too. So this is not the time you want to travel anywhere unless you have to. And of course, airlines are now hiking their fares and quite likely will continue to with oil at over $90 a barrel.

Indian Forex and Gold

India's foreign exchange reserves fell to about $717 billion in the week through March 6th from $728 billion. Reuters quoted RBI or Reserve Bank of India data on Friday. The roughly $12 billion decline came amidst heavy dollar sales by the Reserve Bank to support the rupee against pressure stemming from the Iran war and the rise in oil prices.

The rupee fell to a record low on Friday and weakened to about Rs. 92.47 going past its previous all-time low of Rs. 92.35 and closed finally at Rs.

92.45. That's down 0.7% for the week. Gold prices were down too. Remember, gold prices are going down and not up as many expected in the beginning.

Thanks to a stronger dollar and inflation worry, spot gold was at $5,052 per ounce on Friday afternoon.

The Butterfly Effect

Theory has it that the flapping of a butterfly's miniscule wings can cause a typhoon halfway around the world. Among other things, the war in West Asia and the choke up of the Hormuz strait is driving the private credit bubble into dire straits.

So why are we staring at a butterfly effect right now and what could that mean for India and for those watching the global economy? I spoke with Shankkar Aiyar, veteran economic journalist and columnist with the New Indian Express, who wrote on this theme over the weekend and I began by asking him to explain to us the impact of the butterfly effect.

INTERVIEW TRANSCRIPT

Shankkar Aiyar: The butterfly effect can be explained as what happens, like in a human body, how transmission happens, chain reactions happen. So, in the real economy, what happens is, an event at a distant place can have a counter effect in a different place. So, for instance, the choke-up of former straits in West Asia can result in the collapse of private credit markets in Silicon Valley, or share values on Wall Street, or availability of LPG in India, production of fertilisers in India.

So, for instance, just the passage of crude through Homer Straits is so critical. It's only one-fifth of the global supply. But because of the choke-up, 6,000 products are affected.

And these 6,000 products could range from walls made for heart treatment to polyester, nylon, acrylic, asphalt, foam casings, detergents. All of these are intermediate goods. We all know how many intermediate components are there in an iPhone, but we don't realise how many intermediate components are there in the manufacture of, say, detergent, or fertilisers, or the ordinary fabric that we wear, the dyes that are used.

So, what happens is that if the supply chain is pinched at one end, it results in a domino effect through the chain. And so, once a product is inavailable or supply is short, the costs go up. When the costs go up, it creates two sets of issues.

One is the general inflation in the system, the economy. The other is that it triggers drop in valuation. For instance, in the last 10 or 12 trading days, stock markets just in the US have lost $2 trillion.

We know what's happened to the stock market in India. The FII sold more in the first 10 days of this month than in the whole year. So, there's that cascade effect.

Now, the other way to look at the butterfly effect is when costs go up, inflation rises. When inflation rises, it becomes difficult for central banks to cut rates. Now, if you see that picture, you will notice that sovereign debt is one of the major issues across governments.

Deficit and debt. As of now, countries are struggling with all levels of debt. Global sovereign debt is more than global GDP.

So, every increase in the inflation number results in an increase in the interest rate and therefore the servicing cost of those economies. That's one level. The other level is because the costs are high, because, well, the availability of goods is poor, stock valuations go down.

And overall, economies start sort of grinding towards a stagflationary situation.

Govindraj Ethiraj: Right. And you've said how the flapping of a butterfly's minuscule wings can cause a typhoon halfway around the world. And it's quite frightening, even as you've described this sentence and of course everything that follows from it.

Now, what is the lesson for India if so? I mean, this is something obviously that we had nothing to do with and we are suffering because of, let's say, what's happening or not happening in terms of flow of fuels through the state of Hormuz. So, what can we take away at this point?

Shankkar Aiyar:

Most global crisis, Govind, is the net result of unanticipated consequences. So, the US and Israel overestimated their own prowess and underestimated the response of Iran. The markets, peculiarly, overestimated the power of US to end the war immediately or that it would be short run, like a Venezuela episode.

But that didn't happen. And so now they're considering what could be the cost implications and which we will know when the market opens. I suspect crude oil prices are going to shoot up because Saudi Arabia has also cut output.

So, what can India do is, I mean, you know, this is the thing that you build your economy for resilience. But all economies can have only X amount of redundancy. In India's particular case, I am struck by the fact that when this government came to power in 2014, their manifesto said that they will make India more energy efficient.

We were importing energy to the tune of 70% of the energy requirement was being imported. Now we are importing 88%. LPG similarly was.

So, there is a concept in the stock markets called concentration risk. India has a concentration risk across sectors and which is where you have to see either can you make it yourself? Do you have an option for it?

And then, you know, build the resilience in it. As of now, you just got to sort of put up with it. You know, what can't be cured must be endured.

Govindraj Ethiraj: Right. Shankkar, so have you seen a phase like this before? And how could this end?

Shankkar Aiyar: So, I've seen this in limited ways. The one example that comes to mind is 2008 financial crisis and how the flow of finances across the world, investment, portfolio, everything got frozen. And that created a whole bunch of things.

I mean, it's interesting that the last time this kind of problem happened was in 2008 and the subprime crisis got blown up because crude prices went to $147. The second instance is plain and simple COVID. We all thought we had a global supply chain and we discovered it was a Chinese supply chain.

So, the moment you shut down China's supply, countries learn to make their own bandages, masks and stuff. But you can do it for a limited period of time. I don't think you can do it for a sustainable.

So, what does India need to do? It needs to find, I mean, a simple thing. For instance, when they launched Ujwala gas, gas cylinders for the poor people.

It's a very good scheme. It needs to be done, clean air, efficient. Why not give solar cookers?

Why not promote solar in a country which has 300 days of sunlight? Why not promote solar? So, those are the things that you have to think in terms of resilience, not just in where else will you fetch LPG from, but what can you do to replace LPG, substitute LPG when the need comes.

Govindraj Ethiraj: Right, Shankkar. Thank you so much for joining me.

Shankkar Aiyar: You're welcome, Govind.

Malaysia Trade Deal “Null and Void”

Malaysia has walked out of its trade deal with the United States, becoming the first country to abandon an agreement negotiated under the reciprocal tariff strategy. Malaysia's move highlights, according to the Global Trade Research Initiative in Delhi, a growing dilemma for countries that signed similar deals with Washington, and it could encourage several other US trading partners to reconsider similar deals, according to the GTRI.

After the February 20, 2026 US Supreme Court ruling, the reciprocal tariff policy that supported these agreements has collapsed, and the Trump administration then imposed a uniform 10 percent under Section 122 to all trading partners. But on Sunday, Malaysia's Minister for Investment Trade and Industry said the agreement on reciprocal trade between Malaysia and the United States was now null and void. He said it was not on hold, it's no longer there, it's null and void, and that the United States may rely on other tools such as tariffs under Section 122 or investigations under Section 301.

GTRI says two factors are likely to push more countries to walk away from these trade deals because they've lost their economic value. Countries like Japan, South Korea, Vietnam, within the European Union, Indonesia, Bangladesh, and India had accepted tariffs of between 15 and 20 percent and offered significant concessions on market access, procurement, and regulations. Since the reciprocal tariff policy is now down, everyone gets the same treatment.

On the other hand, trade pressure from the United States continues even after these agreements were signed. So on March 11th and 12th, the Office of the United States Trade Representative, or USTR, launched two new Section 301 investigations against several major economies, including those the U.S. had signed a trade deal over industrial policies and forced labour concerns. So this signals that even countries that negotiated trade agreements remain exposed to new U.S. investigations and potential tariffs.

For many governments, GTRI argues, this combination raises a fundamental question. Why maintain politically costly concessions if the same tariff treatment applies with other deals and trade pressure continues anyways?

The Macbook Neo

MacBook Neo, the laptop it announced last week and starts at about $499 for students, is the most repairable laptop the company has released since 2014, according to an analysis released on Friday by iFixit and quoted by Reuters. iFixit publishes repair guides and sells parts and tools for consumer electronic devices but also provides ratings for how easy items are to fix and to keep running.

Laptop makers like Dell Tech and Lenovo have used those ratings to improve the repairability of their products. In its teardown, iFixit found that Apple had made key changes from previous laptops such as attaching the computer's batteries and keyboards with screws rather than glues or rivets and making it easy to swap out parts such as the device's camera and fingerprint sensor. Apple is believed to be targeting the same markets with its MacBook Neo that Google targets with its low-cost Chromebooks.