 "Iran-Israel conflict: How has India responded? Will country be impacted by fallout?")
The conflict between Iran and Israel has left many on edge.
World War III is trending as a topic on social media. There are reports that Israel is eyeing targeting Iran’s oil refineries as payback for the ballistic missile strikes.
Tehran, meanwhile, has warned Tel Aviv not to retaliate.
But what could be the fallout of such a conflict on India?
Let’s take a closer look
How has India responded?
The Ministry of External Affairs on Wednesday said it is ‘deeply concerned.’
“We are deeply concerned at the escalation of the security situation in West Asia and reiterate our call for restraint by all concerned and protection of civilians,” it said in a statement.
“It is important that the conflict doesn’t take a wider regional dimension and we urge that all issues be addressed through dialogue and diplomacy,” it added.
India has warned its citizens to avoid travelling to Iran unless it is absolutely necessary.
“Those currently residing in Iran are requested to remain vigilant and stay in contact with the Indian Embassy in Tehran,” the MEA said.
What do experts say?
Experts say India is unlikely to face any major disruptions in the short-term due to its strong fundamentals, as per Moneycontrol.
However, in case of a prolonged conflict, India could be impacted.
Impact Shorts
More Shorts“There would be some economic impact for India, but, so far, domestic factors have been strong, which has kept the overall outlook strong,” Paras Jasrai, senior analyst, India Ratings and Research, told the website.
India has sufficient forex reserves to ride out any shocks.
“The geopolitical uncertainties and energy price volatility will have repercussions, if India’s forex reserves were unstable. Given the sufficient reserves, the instantaneous repercussions will be negligible. The record rise in foreign exchange reserves… helps insulate the economy from macroeconomic uncertainties and such global shocks,” added Lekha Chakraborty, professor, National Institute of Public Finance and Policy (NIPFP).
“If the war is going to be short term, then no issue, but if it’s prolonged and there is a widening of conflict, it will be a risk. The impact on investments will delay global recovery, and India’s exports may be impacted,” NR Bhanumurthy, economist and Director of Madras School of Economics, added.
India could also
India Inc braces for disruption
India Inc is bracing for a wider trade disruption across the key Red Sea route.
The conflict can lead to higher cargo freight rates as Lebanon’s Iran-backed Hezbollah militia has close ties with the Houthi rebels in Yemen – responsible for most attacks on ships travelling via the Red Sea route, say industry experts, adding that a direct conflict between Israel and Iran may severely disrupt the crucial trade route for the Indian exporters.
The Red Sea crisis started in October last year, with Iran-backed Houthi rebels disrupting trade in the area.
This has affected India’s petroleum exports which dropped 37.56 per cent to $5.96 billion in August this year, down from $9.54 billion in the same month last year.
As per a recent Crisil Ratings report, Indian companies use the Red Sea route through the Suez Canal to trade with Europe, North America, north Africa, and part of the Middle East.
The report mentioned that these regions accounted for 50 per cent of India’s exports worth Rs 18 lakh crore and 30 per cent of imports worth Rs 17 lakh crore in FY23. The country’s overall merchandise trade (exports and imports combined) in FY23 was Rs 94 lakh crore, with 68 per cent (in value terms) and 95 per cent (in volume terms) shipped by sea.
The attacks on ships sailing in the Red Sea area since November last year have forced companies to look for alternative, longer routes past the Cape of Good Hope.
The Crisil report further said that this has not only stretched delivery time by 15-20 days, but also increased the transit cost substantially because of incremental freight rates and insurance premiums.
Industry experts say that India’s trade with the Middle East still remains healthy due to friendly regional players such as Saudi Arabia, the UAE, Kuwait, and Qatar. The bilateral trade between India and the Gulf Cooperation Council (GCC) countries reached $162 billion last year.
As per the latest government data, the GCC now contributes 15 per cent of India’s total trade and sectors like energy, defence, security and health are growing in the region.
Moreover, according to the latest International Monetary Fund (IMF) data, the trade via the Egyptian Suez Canal nosedived by 50 per cent (year-over-year) in the first two months of the year. In FY24, the Suez Canal’s annual revenue dropped by about 23.4 per cent due to the Red Sea crisis. According to Osama Rabie, Chairman of the Suez Canal Authority (SCA), “revenues fell to $7.2 billion in the fiscal year 2023/2024 that ended in June from $9.4 billion a year earlier”.
According to experts, the rising tensions in the Red Sea area are not only affecting the Suez Canal but also the maritime transportation market, trade movement and international supply chains.
Indian diaspora in Israel and Iran
India has a large diaspora in Israel of around 97,467, according to the MEA.
More than 18,000 Indians work in the country, many as caregivers and agricultural workers. More Indians are expected to travel as the two countries signed an agreement for 1,500 citizens to be flown to the Jewish nation to be employed as construction workers.
India sent the first batch on 2 April but has now decided not to send the second group until the situation is brought under control, reports The Indian Express.
There is also a sizable population of overseas in Iran – over 4000. In case of an Israeli counter-strike, their safety would be at stake.
How are India’s ties with Iran and Israel?
India cannot take sides and needs to walk the diplomatic tightrope once again.
New Delhi has strategic ties with both Iran and Israel.
Iran is an old partner and the two have over the years maintained their relationship. Tehran has been one of India’s major suppliers of crude but this has been hit by Western sanctions.
The Chabahar Port acts as a gateway to Afghanistan and Central Asia and is important since Pakistan does not allow land transit to Indian goods, according to a report by The Indian Express. Terrorism from Pakistan and Afghanistan, the Taliban’s treatment of minorities and the government in Kabul concern both New Delhi and Tehran.
India also has strategic ties with Israel, especially when it comes to defence and security. New Delhi is a top buyer of military equipment from the country and Israel supported India in the Kargil War by providing ammunition. The India-Israel trade ties have become stronger and trade is around $7.5 billion.
Both India and Israel have common concerns about terrorism, having suffered major losses during the 26/11 attacks.
The relationship between New Delhi and Jerusalem has flourished in the last 10 years under the Narendra Modi government. This has led to India backing Israel soon after the 7 October attacks even though the country does not label Hamas a terrorist organisation .
However, amid the current tensions India has refrained from picking sides and has called for restraint in what appears to be a more balanced approach.
How an escalation of Iran-Israel tension could affect India
A wider conflict in West Asia is not good news for India.
The country imports 80 per cent of its crude oil from the region. In case of an escalation, oil supplies from West Asia are likely to be affected and this will lead to a rise in prices.
Also read: Iran vs Israel: How the two countries went from friends to foes
If the prices remain high for a long period, it could translate to higher inflation.
“The present situation is such that the inflation is trending downwards and the current account deficit is manageable. The economy will be able to withstand it for some time. However, if it continues for a longer time, it will impact both inflation and current account, which will lead to slowing down of the economy and could delay monetary easing,” Devendra Pant, chief economist, India Ratings was quoted as saying by Moneycontrol.
India has a strategic partnership with major Arab countries, Iran and Israel. Its interests in West Asia are no longer restricted to oil imports and labour exports. Arab states are economic and political partners for India and a wider conflict could draw them in.
India has been working with all the stakeholders in the volatile region and pushed for the India-Middle East-Europe economic corridor . This has strategic and economic benefits for New Delhi. But a possible wider conflict could impact plans for the future.
Peace in the region then is important to India and the world and de-escalation appears to be the correct answer.
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With inputs from agencies
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