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Gulf diplomatic crisis may not be an issue right now for Indian economy

The imbroglio in the Gulf area is significant for all countries mainly because this part of the world controls the oil economy which has potential to create disruption at a time when the world economy is looking up. The reason behind the blocking of Qatar is political with 7 nations deciding to sever relations with Qatar – Saudi Arabia, Maldives, Bahrain, Egypt, UAE, Yemen and Libya. The allegation is that Qatar has been forging close relations with the ISIS, Al Qaeda and the Muslim brotherhood, which is not acceptable to the others. The recent talks between the US President and the Saudi government have hastened this move as the former is now closer to the Gulf States.

How is India to be affected? The Indian economy is linked quite closely to the GCC countries and while the specific action against Qatar may not be important in the short run, any exacerbation in the relations with other countries would flag problems for India especially so if equations change and become widespread.

The first area of concern would be the non-residents Indians (NRIs) stationed in this region which would be around 7 million, of which around 10 percent would be residing in Qatar. The issue is not just one of passage across these territories but also jobs that could be potentially under threat on this score. The flow of remittances would also get affected in case the tension mounts as people tend to move back to India once there are job losses or the fear of war looms. Also in the past the government has had to take measures to bring them back to safety to India which hopefully should not be the case, though it cannot be ruled out. There would be cost involved besides diversion of the military forces to bring them back.

 Gulf diplomatic crisis may not be an issue right now for Indian economy

Representational image. Reuters

Second, the GCC countries are major suppliers of crude oil and liquefied natural gas (LNG), with Qatar dominating the latter. With Iran also being involved in this controversy, the decisions taken by OPEC could come under some cloud in case political equations are re-aligned which can then lead to distortion in supplies of oil as well as price. This has global ramifications, though with the excess stocks today may not be an immediate concern in the short run. But definitely, the Indian government would be closely observing and monitoring these developments.

Third, India’s economic relations with the GCC with and without Qatar have always been very good and hence there is no immediate reason to suspect that things could go wrong presently. Trade with Qatar is unlikely to be affected due to this non-aligned stance of India in this region, and hence any negative impact mentioned earlier would be more in the nature of collateral repercussions rather than any direct fallout in relations. India would definitely not get caught in an ideological battle of having to support one or the other.

Fourth, corporate India however would be concerned at this development as there are several EPC (engineering, procurement, construction) companies that are involved in some large projects in this region. They do operate across these countries and any repercussion on Qatar on account of the embargo imposed by these 7 nations would impinge on some of their operations. Of late these companies have been more aggressive in this region given that investment has not been picking up within the country. Therefore, there would be considerable sums of money in various projects that could be potentially impacted especially in case this crisis gets prolonged.

Fifth, the airline industry would also have to relook at their business lines as they do tend to cross these territories in an uninhibited manner presently. This can create some chaos with passenger traffic being realigned. However, this should be more of an issue at the margin and that too in the very short run and would probably fall in place in the next couple of months.

While the immediate impact on India and the world appears to be quite limited, the important clue would be the length of this imbroglio. The issues are political and involve Iran and the various other outfits that have sympathy with extremism. As long as it is localised within this geography and does not expand in scope, the negative effects would be minimal and can be absorbed easily by the system but once it escalates, then there is always the possibility of tension escalating and affecting the oil economy in particular.

While this may not be expected right now as the country involved is Qatar which is very small, even though it has one of the highest per capita income in the world, it needs to be see whether or not it snowballs onto a larger platform which can then become a concern for the entire world. The country is to host the football World Cup in 2022 and any change here would have different implications for other nations which are also in the fray – which will be a concern for Indian companies that have contracts.

(The writer is a Chief Economist, CARE Ratings. Views are personal)

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Updated Date: Jun 06, 2017 19:29:28 IST