NEW DELHI: The impact of ongoing tension between Iran and Israel is being felt all over the global economy, including India. As the two nations have deep ties with India, an emerging conflict between the two can put pressure on the country’s energy needs and trade activities.
“India’s trade problems due to shipping disruption in the Red Sea could get worse because of the new conflict…The conflict makes situation in West Asia unstable, forcing projects like the IMEC Trade corridor to remain on paper for a long time,” said Ajay Srivastava, founder, GTRI. On April 1, Israel bombed Iranian consulate in Damascus, killing Iranian officials. In response, Iran launched strikes on Israel on April 13, escalating the Iran–Israel proxy conflict to a direct conflict. Since then, a possible retaliation by Israel is keeping the global economy on its toes.
Impact on markets
For India, the biggest impact of the turmoil is being felt on its stock market. In the first four sessions since tension escalated, India’s equity market benchmark indices, BSE Sensex and NSE Nifty, declined by 3% each.
Manoranjan Sharma, Chief Economist - Informerics Ratingshad, recently said this war has wide-ranging ramifications and repercussions across geographies, economies and sectors with volatility in bond and equity markets though temporarily. He added that bond prices will fall, the cost of credit will rise for companies, crude prices will rise and stock markets will fall both because of reduced profitability of the corporate sector and heightened uncertainty.
Fluctuating oil prices
Most experts see a growing conflict between Israel and oil-rich Iran could potentially disrupt oil supply from the region, leading to a rise in oil prices globally. On Friday, Brent oil, the global benchmark, jumped 3.94% to $90.54 a barrel. The rally came amid reports that Israeli missiles hit a site in Iran. Experts believe a rise in oil prices will affect India as it relies on imports to meet over 80% of energy needs.
Guara Sengupta, economist at IDFC First Bank, sees a limited impact on India’s CAD due to oil prices. “We expect current account deficit at 1.3% of GDP assuming prices at $85pb,” added Sengupta.
Trade route
The conflict has impacted trade routes in the region and if it surges ahead, it could further impact trade by the important maritime passage - the Strait of Hormuz. A disturbance here could lead to delays, increased shipping costs, and instability in global trade.
India’s trade with Iran, Israel
India’s merchandise exports and imports from Israel for FY23 were $8.4 bn and $2.3bn, respectively
India’s key exports to Israel are: Diesel ($5.5 bn) and Cut and Polished diamonds ($1.2 bn)
India’s key imports from Israel are: Rough diamonds ($519 mn) and Cut and polished diamonds ($220 mn)
India’s trade with Iran included merchandise exports worth $1.7 bn and imports of $672 mn in FY23
Key exports from India to Iran were rice at $1.03 bn, Organic chemicals-$113 mn
Key exports from Iran to India were Methenol at $176 mn, Petroleum coke-$85 mn