The recent massive rocket attack by Iran on Israel signals a grim reality: achieving a ceasefire or peace in the Middle East is currently out of reach. Iran’s direct involvement escalates tensions, posing a significant risk of broader regional turmoil. This unprecedented retaliation by Iran against Israel raises the spectre of a wider war in the region.
The Middle East is already burdened by deepening fault lines, with the conflict in Gaza remaining a key issue that fuels the cycle of violence. Given Iran’s military capabilities and nuclear ambitions, the stakes are higher than ever.
India’s economic stability is closely tied to the Middle East, a region now teetering on the edge of prolonged turmoil due to the escalating conflict between Iran and Israel. As a nation that relies heavily on the Middle East for its energy security—importing nearly 80 per cent of its crude oil from the region—any disruption in oil supplies could have a ripple effect on the Indian economy. Rising oil prices would not only strain public finances but also lead to inflation, increasing the cost of living for millions and slowing down economic growth.
Beyond energy, the conflict threatens India’s vital trade routes. The Middle East serves as a crucial transit point for Indian exports, particularly to Europe. Prolonged conflict in the region could cause significant trade disruptions, leading to delays and increased costs for Indian exporters. This, in turn, would affect India’s trade balance, further destabilising an already fragile global economic environment.
India also finds itself in a delicate diplomatic position, having cultivated strategic relationships with both Iran and Israel. As tensions rise, India faces the challenge of balancing its ties with these two nations while maintaining its stance on peace and stability. This balancing act could strain India’s foreign policy and diplomatic resources, complicating its ability to navigate the complex geopolitical landscape.
The broader implications of instability in the Middle East extend beyond energy and trade. Regional disturbances pose a threat to global peace, and for India, maintaining stability in the region is essential not only for its economic interests but also for its national security.
Energy Security
India’s energy security is critically dependent on the Middle East, as the region supplies nearly 80 per cent of the country’s crude oil imports. This heavy reliance places India in a vulnerable position, particularly during periods of conflict in the region. Any escalation of hostilities, such as the current tensions between Iran and Israel, can severely disrupt the flow of oil from the Middle East. Such disruptions could trigger a sharp rise in global oil prices, directly affecting India’s economic stability.
Higher oil prices have wide-reaching consequences for India’s economy. Firstly, they increase the cost of importing oil, leading to a widening trade deficit and straining the country’s foreign reserves. A sustained rise in oil prices also puts significant pressure on the government’s fiscal health, as it may be compelled to increase subsidies or absorb higher import costs to shield consumers from price shocks.
Moreover, rising oil prices directly contribute to inflation by increasing transportation and manufacturing costs across various sectors. Since oil is a key input in industries ranging from agriculture to manufacturing and services, higher prices cause a broad-based rise in the cost of goods and services, further fuelling inflationary pressures. For Indian citizens, this results in a higher cost of living, with everything from fuel to food becoming more expensive.
In the long term, sustained high oil prices could also slow down economic growth, as inflation erodes consumer purchasing power, reduces demand, and increases production costs for businesses. For an economy already navigating post-pandemic recovery challenges, the potential energy security risks arising from conflict in the Middle East pose a serious threat to India’s overall economic stability and growth trajectory.
Trade Disruption
The escalating conflict between Iran and Israel poses serious risks to India’s economic stability and trade. As tensions rise, one of the most immediate concerns is the potential disruption to key maritime routes, particularly the Strait of Hormuz. This strategic waterway handles around 20 per cent of the world’s petroleum transport, making it vital for India, which relies heavily on the region for its crude oil imports. Any blockade or conflict-induced disruption here could lead to severe supply shortages, causing energy costs to soar and further straining India’s already sensitive energy security.
However, the ramifications extend beyond oil. India’s trade ties with both Iran and Israel are significant, and the conflict threatens to destabilise these relationships. In 2023 alone, India’s trade with Israel underscored the deep economic connections between the two nations. A prolonged conflict could result in delays, higher shipping costs, and disrupted supply chains, severely affecting Indian exporters, particularly in sectors like textiles and footwear. Rising container freight rates are already putting pressure on businesses trying to navigate a volatile global market.
The broader geopolitical fallout from the Iran-Israel conflict also complicates India’s aspirations in Central Asia. As India seeks to expand its trade and economic influence in this resource-rich region, instability in West Asia threatens to derail these efforts. Reduced global demand due to economic uncertainty and a sluggish global economy would only add to the challenges faced by Indian exporters, especially small and medium-sized enterprises (SMEs).
India’s strategic response has been measured, balancing its relationships with both Iran and Israel while diplomatically engaging with neutral regional players like the UAE. As the conflict continues, navigating these turbulent waters with deft diplomacy and strategic foresight will be crucial for safeguarding India’s economic interests.
Geopolitical Challenge
As tensions escalate, India’s interests in the Middle East—crucial for its energy security, defence partnerships, and regional stability—are increasingly at risk. India finds itself in a precarious diplomatic position due to its historical ties with both Israel and Iran. On one hand, Israel is a critical defence partner, supplying India with advanced military technology, cybersecurity expertise, and intelligence collaboration. On the other hand, Iran is indispensable to India’s energy needs and serves as a gateway to Central Asia through the Chabahar Port, vital for trade and strategic influence. Escalating tensions force India to walk a fine line, maintaining relationships with both nations without alienating either.
The broader instability in the Middle East, fuelled by this conflict, further complicates India’s foreign policy. Prolonged unrest could spill over into South Asia, exacerbating sectarian tensions within India, which has a significant Muslim population, as well as destabilising neighbouring regions. Additionally, the safety of India’s vast diaspora in the Middle East, many of whom work in the Gulf states, could become a pressing concern, necessitating contingency planning for repatriation or evacuation.
India also faces external pressure from global powers. As a strategic partner of the United States—an ally of Israel—India is expected to align with Western interests. Meanwhile, Russia and China, both with stakes in the region, may urge India to adopt a more neutral or alternative stance.
Navigating the Israel-Iran conflict requires India to employ astute diplomacy and strategic foresight, ensuring it safeguards its national interests while balancing competing alliances in an increasingly volatile region.
The author, a columnist and research scholar, teaches journalism at St. Xavier’s College (autonomous), Kolkata. His handle on X is @sayantan_gh. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect News18’s views.
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