Rising Tensions, Rising Costs: The Economic Fallout of the Israel-Iran Conflict
Impact of the Israel-Iran Conflict on Indian Trade
While the Israel-Iran conflict has escalated, it means potentially increasing logistics costs and disrupting trade in many sectors. Furthermore, the Red Sea and Suez Canal, crucial for global trade, are impacted by the conflict. The instability in the region is not only threatening the safety of these routes but also affecting global maritime trade. Due to longer shipping routes caused by the conflict, shipping costs have been witnessing an increase.
The tension deteriorated with Iran’s launch of nearly 200 ballistic missiles. Israel has warned of severe consequences, while Iran has threatened to escalate attacks if Israel continues its actions in Lebanon. Hence the fallout of the conflict may extend beyond the Middle East.
Considering the sanctions already imposed on Iran, especially in the Petroleum sector, markets for Iran product imports have become sluggish. Now with new tensions in the region, the condition gets worse for Iran.
One of the main markets for Iran’s bitumen export is India. The country that according to the Global Trade Research Initiative (GTRI), its trade with Israel, Jordan, and Lebanon is already being impacted.
Since 2019, India’s trade with Iran has been declining, except for a 21.76% increase in FY 2022-23. During this period, India’s trade with Iran reached USD 2.33 billion. In FY 2023-24 (April-July), trade stood at USD 660.70 million, as Jagran English quoted from India’s Commerce Department.
In contrast, trade with Israel has grown sharply over the last five years but has dropped in FY 2023-24, from USD 10.77 billion in 2022-23 to USD 6.53 billion. Continued conflict could further reduce trade with Israel as India’s exports have already dropped by 9% in August 2024, mainly due to disruptions.
Oil Price Impact
While global oil prices have surged due to the recent tensions, India’s diverse oil imports mean it isn’t heavily reliant on Iranian oil. However, any major disruption in oil supply routes like the Strait of Hormuz could cause prices to rise. The Indian government is monitoring the situation and is prepared to manage any price volatility, with current prices below historical highs.
According to MK Surana, former chairman of Hindustan Petroleum Corporation Limited (HPCL), a significant rise in crude oil prices, especially above USD 80 per barrel, would depend on how the conflict unfolds. If it escalates and disrupts key supply routes like the Strait of Hormuz oil prices could see sharp increases.
