Israel Iran War: From Crude Oil to Trade, Here's How the Conflict May Hit India Hard

The whole world is eagerly waiting for the escalation of tensions between Israel and Iran, and so is India. Although they are physically separated, India is one country that could suffer in case the conflict escalates, especially in terms of energy security, economic stability, and encroachment on foreign trade. According to a report by DNP India, India could face some major issues due to the impact of this escalating war.

Crude Oil Prices on Edge

India consumes more than 85% of its crude oil imported, most of which is supplied by countries in the Gulf and the Middle East region. The rise in global oil prices, already on the radar of global forecasters due to the threat of oil supply disruptions following the Israel-Iran war, will have a direct impact on India, as it will be effective in stabilizing fuel prices and controlling inflation rates in India.

The rise in oil prices not only increases the prices of petrol and diesel for consumers but also increases the cost of transportation and manufacturing, thus adding to the overall inflation.

Trade Routes and Currency Volatility

In case the conflict overflows into the larger regional unrest, the transport of oil via the Strait of Hormuz, which gives access to about two-thirds of the global oil supply, is likely to be affected. It would slow down imports, jack up the freight prices, and, most more all, create a trade imbalance with India.

Also, constant geopolitical instability can cause weakness of the Indian rupee against the dollar, which can increase the prices of foreign goods and can lead to problems in some sectors dependent on imports, such as electronics, cars, and pharmaceuticals.

Impact on Indian Exports and Remittances

India also exports goods and services to Iran and neighbouring countries. Increasing instability could weaken these trade ties. Moreover, there are millions of Indian workers in the Gulf region, and any ongoing conflict could disrupt remittance returns, which are a significant contributor to India's foreign exchange reserves.

Strategic and Diplomatic Concerns

India has been a good diplomatic balancer between Israel and Iran. Now they have reached a soft spot where Indian diplomacy must walk the line of not angering important partners, yet maintaining a degree of strategic autonomy.

India needs to brace itself against economic turmoil and re-strategize its energy and foreign policy arrangements in the context of the changed circumstances in the Middle East and the external world scenario.