October 7, 2024, marked a year since Hamas fighters stormed into Israel from the Gaza Strip, killing more than 1,200 people. The Middle East today remains in its most precarious state. Israel’s response has killed more than 41,000 Palestinians in Gaza; state violence against Palestinians has increased in the occupied West Bank; Israel has invaded Lebanon, where it is battling Hezbollah; and Israel and Iran remain on the brink of all-out war.
What makes it worse is that war is still raging in the Gaza Strip, the hostages haven’t been returned, millions of Palestinians live in inhuman conditions, and the hostilities between Israel and Hezbollah in Lebanon have escalated in recent weeks, leading to more bloodshed and devastation. The inevitability of pain is visible.
As Israel continues to grapple with the loss of its aura of inviolability following the Hamas attack, Iran is struggling to maintain its influence as its proxies in Gaza, Lebanon, and Yemen suffer heavy losses. While both countries know that an all-out war would be catastrophic, neither side can afford to back down entirely.
The rapidly escalating tensions between Israel and Iran and its proxies have raised the fear of a conflict that threatens to further push the region into deeper crisis, with grave economic and geopolitical fallouts for the rest of the world. This also has significant ramifications for India due to the impact on global oil prices, trade, and regional stability.
Crude Oil
The tensions have led to a rise in crude oil prices, which have increased by over 9 per cent in the last month. The worry for the government is the price fallout of any disruption in Iran’s oil supply lines or damage to its oil assets. There is talk of Israel wanting to target Iran’s oil infrastructure in case of further escalation. Though India no longer imports Iranian crude, a disruption of Iranian crude will drive up their prices.
Iran has the world’s third largest oil and second largest natural gas reserves. According to a Morgan Stanley report, a $10 per barrel increase can impact consumer prices by 0.2 to 1.4 percentage points across Asian economies. In India, it is said that the consumer price index (CPI) rises up to 0.5 percentage points for each $10 per barrel increase in oil prices.
The increase in prices impacts India’s import bill, worsening the trade deficit and putting pressure on the rupee, which has now touched Rs 84 to a dollar. A weaker rupee makes imports costlier, adding to inflationary pressures.
Trade Routes
Turbulence in the region and continuing US sanctions on Iran have already delayed the critical Chabahar Project, which acts as a gateway for India to Afghanistan and Central Asia and is important since Pakistan does not allow land transit to Indian goods.
The North South Trade Corridor (NSTC), which is a 7200 km sea, road, and rail transit corridor, runs from India—Iran—Azerbaijan—Russia—and Europe. It is meant to be an alternative to the Suez Canal.
The NSTC has suffered due to both the Ukraine War and the tensions in West Asia. It needs to overcome the political and geopolitical challenges, and the current tensions are a setback to its progress.
The Iran-Israel war could also impede the progress of the India-Middle East-Europe Corridor (IMEC), which was announced last year during the G20 meeting. The IMEC plan comprises an Eastern Corridor connecting India to the Gulf region and a Northern Corridor connecting the Gulf region to Europe. The area shown as ‘Blessing’ in Netanyahu’s map displayed in the UN. It will include a railway and ship-rail transit network, as well as road transport routes.
Israel is a critical part of this corridor with Haifa’s Port, one of the largest ports in the Eastern Mediterranean, serving as a transshipment hub for Europe and developing a seamless supply chain. The Adani Group is involved in the development of this port.
Shipping Lines
The Strait of Hormuz, located between Oman and Iran, connects the Persian Gulf with the Gulf of Oman, and the Arabian Sea is the world’s most important trade transit chokepoint. Bulk of India’s crude flows through this, which, along with the Red Sea, is critical to global trade. The country imports 80 per cent of its crude oil from the region. In case of any disruption, oil supplies from West Asia will be affected.
The Red Sea is another choke point that connects the Arabian Sea to the Suez Canal. Ships passing through the Red Sea region have been attacked by Iranian-backed Houthi rebels from Yemen. This resulted in re-routing of ships and increased insurance costs.
Air Travel
The West Asia crisis is complicating travel plans. Air India has suspended flights to and from Tel Aviv, citing safety concerns, while carriers like Vistara and IndiGo, along with several international airlines, are avoiding Iranian airspace as worries over a retaliatory attack from Israel targeting Iran grow.
The rerouting of flights can mean longer flight paths and higher operating costs for airlines. For airlines, diversions add to fuel costs and heighten airfares. The other worry is that the escalation of conflict will lead to a rise in prices of aviation turbine fuel.
These price surges can impact travel affordability. It is also bound to impact global air traffic, including from India, especially at a time when large sections of the Indian diaspora will be homebound due to winter holidays in Europe and North America.
Trade
Trade with Iran dipped to under $2.33 billion in FY23 from $17 billion in FY19. Experts believe that a direct conflict involving Iran could make India’s trade with Tehran even more difficult.
About 25 per cent of Basmati rice exported from India is sent to Iran, which has been affected due to the uncertainty. This has worried Basmati rice farmers as the big exporters and millers have reduced the quantity they earlier used to buy in the grain markets, and the price of the Basmati 1509 variety has fallen to ₹ 2,700 per quintal compared to ₹ 3,500 per quintal last year.
As regards Israel, the balance of trade is firmly in India’s favour, with exports worth $8.45 billion, mainly petroleum products, diamonds, and chemicals, whereas India imported goods worth $2.32 billion, mainly precious stones and fertilisers. But increasing tensions could see trade volumes dip.
Security Implications
The military implications for the region cannot be overlooked. Increased military activity could lead to greater instability across West Asia, particularly if other regional powers become involved.
Israel is among the top arms exporters to India. In 2000, India and Israel signed their first defence deal for the purchase of the Barak-1 surface-to-air missile system. Major Israeli defence equipment purchased by India consists of the Phalcon airborne early warning and control system (installed on Russian Il-76 aircraft), an array of UAV systems including Heron, Searcher II, and Harop, as well as surface-to-air missile systems such as Spyder and Barak, air-to-surface missiles such as Popeye I and II, Spike anti tank guided missiles, and a host of sensor systems.
Indian Special Forces are equipped with Israeli assault rifles such as Tavor, Galil, Negev machine guns, and the B-300 man-portable anti tank weapon system. In 2017, Israel Weapon Industries and Punj Lloyd commenced production of the Tavor Carbine, X95 Assault Rifle, Galil Sniper Rifle, and Negev Light Machine Gun at Gwalior. The production of the Drishti-10, an Indian-made version of Israel’s Elbit Systems’ cutting-edge Hermes-900 UAV by Adani Defence and Aerospace, the drone is likely to be inducted in the Indian Navy later this year.
Besides co-production, the successful development of the Barak-8 air and missile defence system by Israel Aerospace Industries (IAI )and India’s Defence Research and Development Organisation (DRDO) stands as a major achievement of this collaboration. In another project, IAI is also partnering with the Hindustan Aeronautics Limited (HAL) to convert six Boeing-767 civilian aircraft into aerial refuelling tankers for the Indian Air Force.
The escalating tensions, no doubt, are much wider than a mere Israel-Hamas and Hezbollah showdown, and as Israel looks inwards to cater for its defence needs and as production of critical technology suffers due to a shortage of workers who have now joined the Israeli Armed Forces or due to supply chain disruptions, the effect will be visible in Israel’s defence exports.
Diaspora
India has a large number of citizens living in this region. From Israel and Lebanon to the Gulf and in Iran. India has a large diaspora in Israel of around 97,467. Of this, more than 18,000 Indians work mainly as carers and agricultural workers. India also signed an agreement for 1,500 citizens to be employed as construction workers. The first batch is already in Israel.
There is also a sizable population overseas in Iran, over 4,000. In case of an Israeli counter-strike, their safety would be at stake.
Civilisational Ties with Iran
India and Iran share a millennia-long history of interactions. The contemporary relationship draws upon the strength of these historical and civilisational ties and continues to grow further, marked by high-level exchanges, commercial and connectivity cooperation, and cultural and robust people-to-people ties.
Shia clerics, scholars, and clerics often receive theological training at seminaries in Iran, especially in the city of Qom. These seminaries maintain close contacts with Indian Shia communities as well. This is in addition to the holy cities of Najaf and Karbala visited by Indian Shias.
Israel Relations
Beyond security, India and Israel have forged closer cooperation in information technology, agriculture, renewable energy, and pharmaceuticals.
India and Israel have already joined hands for joint innovation in agriculture, water, and digital health through the India-Israel Global Innovation Challenge. This partnership can expand to shape a startup corridor or bridge that brings together their respective national innovation communities. In addition, India can offer the scale for the development and application of technologies developed by Israel.
A Lesser Known Fact: India’s Presence in Lebanon
On October 10, the UN interim mission in Lebanon (UNIFIL) reported that an Israel Defence Forces (IDF) tank had fired at an observation tower, causing it to collapse and injuring two Indonesian peacekeepers. The inviolability of the UN needs to be respected, and this was clearly mentioned by the Ministry of External Affairs.
With 903 soldiers, India has the third-largest number of troops in UNIFIL after Indonesia and Italy.
Conclusion
As a victim of cross-border terrorism from Pakistan for several decades, India understands the consequences of terrorism not being tackled head-on. Therefore, it unequivocally condemned the Hamas terrorist attack and expressed its solidarity with Israel. At the same time, India has maintained that Israel has an international obligation to observe humanitarian law and underlined that the only viable path is a “two-state solution”.
Even as it responds to the unfolding situation in the Middle East, India is advocating a path to put an end to hostilities and for the return of stability to the region and is a rare voice of sanity. There is no doubt that the fallouts of the conflict cannot be contained and will have grave implications not only within the region but also beyond.
Prime Minister Narendra Modi clearly stated at the ASEAN Summit on October 11 that the conflicts going on in different parts of the world are having the most negative impact on the countries of the Global South. It is therefore imperative that peace and stability be restored as soon as possible.
The author is a retired Major General of the Indian Army. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.