India Grapples with Trade Risks Amid Iran-Israel Conflict

The escalating tensions between Iran and Israel have prompted India to convene emergency talks with key stakeholders to assess and mitigate potential risks to its $825 billion trade. The conflict poses a significant threat to vital trade routes and could lead to increased freight rates and insurance premiums, impacting India's overall exports and economic stability.

The meeting, chaired by Commerce Secretary Sunil Barthwal, aims to address concerns raised by exporters regarding the movement of merchant ships through the Strait of Hormuz and the Red Sea. India's strategic balancing act is now under immense pressure..

Highlights

• India holds emergency talks amid Iran-Israel conflict.
• $825 billion trade at risk due to escalating tensions.
• Key trade routes and energy supplies threatened.

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Top 5 Key Insights

• Trade Route Disruption: Nearly 30% of India's exports to Europe, North Africa, and the US East Coast pass through the Bab el-Mandeb Strait, while the Strait of Hormuz is critical for energy imports. Disruptions in these areas could significantly increase transport costs and travel times.

• Energy Security Risks: Approximately two-thirds of India's crude oil and half of its LNG imports pass through the Strait of Hormuz, which Iran has threatened to close. Any closure would sharply increase oil prices, shipping costs, and insurance premiums, triggering inflation and pressuring the rupee.

• Impact on Bilateral Trade: India's exports to Israel have already fallen sharply to $2.1 billion in 2024-25 from $4.5 billion in 2023-24, and imports have decreased to $1.6 billion from $2.0 billion. Similarly, exports to Iran, which stand at $1.4 billion, could also suffer.

• Geopolitical Balancing Act: India maintains a delicate balance in its relationships with both Iran and Israel, with strong defense ties to Israel and strategic connectivity projects like the Chabahar Port with Iran. The conflict forces India to navigate these relationships carefully to protect its interests.

• Economic Consequences: A prolonged conflict could lead to higher air and sea freight costs, increased insurance premiums for export/import-based sectors, and delays in payments from counterparties in affected regions, elongating the working capital cycle.

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Expert Insights

CRISIL Ratings: "The immediate fallout on India Inc's trade remains modest, given the small scale of direct commercial links, but escalating geopolitical risks could affect energy markets and supply chains." GTRI (Global Trade Research Initiative): "Any closure or military disruption in the Strait of Hormuz would sharply increase oil prices, shipping costs, and insurance premiums, triggering inflation, pressuring the rupee, and complicating India's fiscal management."

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Wrap Up

India's proactive response to the Iran-Israel conflict underscores the interconnectedness of global geopolitics and economic stability. The emergency talks highlight the government's commitment to safeguarding trade interests and mitigating potential disruptions.

As the situation unfolds, India's ability to navigate these challenges will be crucial in maintaining economic resilience and ensuring continued growth amidst regional uncertainty. The focus remains on strategic adaptation and diplomatic engagement to secure India's position in the global landscape..

Author

Omar Hassan - An experienced international affairs correspondent with a global perspective on major world events and diplomacy. He brings insightful commentary on global trends and international relations to Enlightnr.