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Published: October 19, 2024
Updated: October 19, 2024

Middle East Tensions and Iran-Israel Conflict: The Potential Economic Impact on India

Rising Middle East Tensions

Tensions in the Middle East have escalated dramatically following Iran's launch of nearly 200 missiles on Israel. This response came after an Israeli strike on Hezbollah in Lebanon, placing the region on high alert. While the immediate conflict is centred in the Middle East, the repercussions of this escalation are being felt across the globe, especially in India, which could face significant economic consequences.

Oil Prices Surge: A Major Concern for India

Iran plays a crucial role in the global oil market as a key member of OPEC, and the recent missile strikes have caused a spike in oil prices. Following the attacks, US West Texas Intermediate (WTI) crude futures jumped to $70.92 per barrel, reflecting global market anxiety. For India, which is heavily dependent on Middle Eastern oil, this is alarming news. Any disruption in oil supply could lead to a rise in petrol and diesel prices, adversely impacting consumers, businesses, and overall energy security.

India-Middle East Trade: A Vital Economic Link

The trade relationship between India and the Middle East extends far beyond oil. India exports goods such as machinery, pharmaceuticals, and textiles to Middle Eastern countries, while importing oil, natural gas, and fertilizers. The bilateral trade volume stands at a significant $195 billion. Additionally, investments from the Middle East have been flowing into Indian infrastructure, startups, and other sectors. A prolonged conflict could jeopardize these economic ties, potentially disrupting trade and investment flows.

Impact on Indian Workers in the Gulf

One often overlooked aspect of India’s relationship with the Middle East is its workforce. Around 9 million Indians work in Gulf countries, contributing significantly to India's economy through remittances. If the conflict intensifies, it could threaten jobs and incomes for these workers, potentially affecting millions of families back in India who rely on these earnings.

Free Trade Agreements in Jeopardy

India is currently in talks with several Gulf nations about free trade agreements (FTAs) that aim to boost trade and investment. However, ongoing instability in the Middle East could derail these negotiations, delaying potential economic benefits for both regions.

A Global Conflict with Local Consequences

Although the conflict is centred thousands of miles away, its impact on India's economy could be substantial. The duration and severity of the Iran-Israel conflict will determine the extent of the fallout, but it is clear that oil prices, trade, and the livelihoods of millions of Indian workers could be affected. This is a situation that India will have to monitor closely as the global consequences continue to unfold.