escalation of Israel-Iran war will impact India’s economy

 

 

 

 

 

By Girish Linganna 

 

 

 

 

 

AS THE polling for the 18th Indian Lok Sabha elections began on April 19, New Delhi is closely monitoring the growing conflict between Iran and Israel. The situation in the Middle-East is creating risks for energy, security, and trade that could affect India, now the world’s most populous country. Harsh V Pant, Vice-President of studies and foreign policy at the Observer Research Foundation, said that India faces significant consequences depending on how the situation develops, which might compel the country to make some tough decisions. Pant cautioned that trade and energy security are crucial concerns. He warned that if the conflict escalates, it could impact the well-being and economic stability of Indian citizens. US officials reported that Israel attacked Iran as a response to Tehran’s drone strikes on April 12. These drone strikes were retaliation for an earlier Israeli attack on a diplomatic location in Syria. Analysts note that India’s quick calls for calm after the drone strikes, along with Foreign Minister Subrahmanyam Jaishankar’s conversations with both his Iranian and Israeli counterparts, show New Delhi’s deep concern about the situation. At a public event on Monday, Jaishankar emphasised that the Government’s worry about a “highly sensitive area” and called for peace. He added, “For the rest of the world and especially for India, we are looking for ways to reduce the tension.” India, with a population of 1.4 billion and as the third-largest oil consumer globally, imports more than 80% of its oil from the Middle-East to satisfy its domestic needs.

 

With strategic oil reserves only sufficient for one to three months, India’s need for energy imports is both significant and immediate. India relies heavily on the Middle-East for its energy requirements, primarily for oil and natural gas. These resources are crucial for powering the country’s vehicles, generating electricity, and supplying energy to various industries. The Middle-East is a key supplier due to its vast oil reserves, making it essential for India to maintain stable relations with countries in this region to secure its energy needs. Natural gas is a type of fossil fuel primarily composed of methane. It is found underground and is used as a source of energy for heating, cooking, and electricity generation. It’s also used as a fuel for vehicles and as a raw material in the manufacture of plastics and other commercially important organic chemicals. Natural gas is valued for its efficiency and clean burning compared to other fossil fuels, producing fewer pollutants and greenhouse gases. India’s Trade Ministry has decided not to take any immediate policy actions regarding the Israel-Iran conflict, choosing instead to monitor the situation further before making any decisions. Analysts say that if the conflict worsens, many of India’s interests could be at risk, especially with potential instability in the Red Sea.

 

The situation became more pressing when Iran’s Revolutionary Guards captured a cargo ship with Indian sailors near the Strait of Hormuz on April 13, highlighting the direct impact on India. Iranian forces released a female crew member, Ann Tessa Joseph, who returned home on Thursday. Diplomatic efforts continue to ensure the safe return of the other 16 crew members. About 1,00,000 Indians live in Israel, and 4,000 in Iran. A recent agreement that made it easier for Indian construction workers to go to Israel is now uncertain. The first group of workers travelled to Israel in early April. According to ‘South China Morning Post’, Talmiz Ahmad, a former Indian diplomat with extensive experience in West Asia, said that a full-scale war between Israel and Iran is still unlikely. If a full-scale war were to happen, it would not only affect India but would also have serious repercussions for the entire world, said Talmiz Ahmad, a former Indian diplomat who has served as ambassador to Saudi Arabia, Oman, and the UAE. According to Talmiz Ahmad in an interview with ‘This Week’ in Asia on Friday, as reported by ‘South China Morning Post’, Israel’s response was quick and forceful, primarily to protect its interests and maintain its image. He mentioned that this action is unlikely to have a significant impact beyond Israel and Iran. India’s main concern would be if the conflict spreads across the region. However, if the conflict remains between Iran and Israel, it will likely be minor.

 

Under Prime Minister Narendra Modi’s leadership, India has significantly deepened its strategic relationships with Israel in areas such as defense, agriculture, and technology. In 2017, Prime Minister Modi made a landmark visit to Israel, the first by any Indian Prime Minister. This trip set the stage for a dramatic increase in trade between the two countries, with bilateral trade nearly doubling from $5.56 billion in 2018-19 to $10.7 billion in 2022-23. Jon Alterman, Senior Vice-President and Director of the Middle-East Programme at the Centre for Strategic and International Studies, noted in a report by SCMP that trade between India and Iran has decreased over the past decade. The relationship has become less strategic compared to when Iran was a key supplier of crude oil to India. Over 9 million Indians reside across various countries in the Middle-East. India has maintained a careful balance in its relations with both Israel and Iran, avoiding taking sides for many years. According to Alterman, a major conflict in Middle-East could significantly threaten safety of millions of Indians working there and disrupt India’s trade. Alterman further explained that New Delhi should concentrate on India’s global position. As major powers are more driven by competition, how India positions itself while maintaining flexibility is becoming more complicated.