NEW DELHI: The Israel-Palestine conflict could further weaken economic sentiments in the country.
The situation in West Asia not only threatens to disrupt trade and supply chains, but also leads to higher inflation and weakening of government finances.
The immediate impact could be oil imports from the region leading to high crude oil prices.
On Monday, Brent Crude prices touched a high of $89 a barrel, up from $84.58 level on Friday.
The equity markets reacted negatively, even if the fall on Monday was not as large as was expected.
Benchmark indices – Sensex and Nifty – fell by over 0.7% on Monday.
Gold prices also soared as investors looking for safe haven started buying gold. MCX Gold December future surged Rs 494 to Rs 57,365 per 10 gm.
The government, though, is putting up a brave face amid the uncertainty.
“The ongoing conflict between Israel and Palestine will not create an energy issue for India, and the country will navigate through it”, said Petroleum Minister Hardeep Singh Puri on Monday.
A commerce ministry official on the condition of anonymity said that no formal discussion has taken place on the issue yet.
Though India’s total merchandise trade with Israel was only $11 billion, which is less than one per cent of India’s total trade, West Asia accounts for 20% of India’s total trade.
Three of the top five crude oil suppliers to India – Iraq, Saudi Arabia and UAE – are from this region. They accounted for almost 50% of the country’s oil imports in 2022-23.
Dr Ajay Sahai, director general & CEO, Federation of Indian Export Organisations (FIEO), a trade promotion organisation under the Ministry of Commerce and Industry, said if tension escalates into war with some Middle East countries and large powers siding with Hamas, this will be a huge setback for the world as the world can ill-afford two wars at the same time.
“Freight cost will go up with limited fleet availability, rising insurance and related risks, the flight of the capital from countries to safe heaven will result in dollar appreciation and uncertainty will slow down the trade as well,” said Sahai.
Analysts also expect some disruption in supply of raw diamond as Israel is an important supplier and with Russia already cut from the market due to sanctions.
Trade relations