In a highly linked world, uncertainty in the Middle East is sure to cause turbulence in several economies. India heavily relies on middle eastern crude and other exports today. As the world’s third-largest consumer of crude oil, India depends on imports to meet over 85 per cent of its requirement. Any change in prices or shortages will lead to increase in price level of all commodities, spiraling up inflation.
Trade surplus with Israel
Both Israel and Iran are key trade partners to India. India’s merchandise exports to Israel during 2022-23 was USD 8.4 billion and imports were USD 2.3 billion, leading to a trade surplus of USD 6.1 billion. India’s key exports to Israel are diesel (USD 5.5 billion) and cut and polished diamonds (USD 1.2 billion). The key imports are rough diamonds (USD 519 million) and cut and polished diamonds (USD 220 million), electronics and telecom components like ICs, parts of photovoltaic cells (USD 411 million) potassium chloride (USD 105 million) and herbicide (USD 6 million).
Several Indian firms like Sun Pharma, Tata Consultancy Services, Wipro, Tech Mahindra, State Bank of India, Larsen & Toubro, and Infosys have their presence in Israel. Similarly Israeli firms have invested close to USD 286 million in India between April 2000 and June 2023.
Iran – major oil exporter
India exports rice, tea, raw sugar, chemicals and pharmaceuticals to Iran. On the other hand, Iran was a key oil exporter until sanctions in 2019. Another major collaboration is the joint development of Chabahar port in the Baluchistan province of Iran. Once completed, this will open a gateway for India to trade with Middle east and parts of Europe with ease and at a much lower freight cost and time.
The Red sea route is already terrorised, causing substantial delays and higher freight cost. The overall freight movement can also be affected if the war spills over. India has decided to take a policy step, post impact assessment. While oil, aviation and capital goods companies will face the pinch, Indian defence sector can have an up look. Countries in the region look for India’s exports and this is reflected in the record Rs 21,000 crore in FY 24 which is 32 per cent higher than the previous year.
But India is left in a sticky position. Relation with Israel have been built slowly and carefully over the years and their expertise has been leveraged in Indian defence, technology and startups. Similarly Middle East is an important partner and with the G20, several trade agreements with the region have been signed for energy and trade exchanges. Deciding on taking a side, or even staying neutral, when the situation escalates, will have a lasting impact for the country’s international relations.
