The ongoing conflict between Iran and Israel in the Middle East could have significant effects not only on the global economy but also on India. If the conflict escalates, it threatens not only regional stability but also presents several economic challenges for India.
In this article, we will examine the potential impact of the Iran-Israel conflict on India, particularly focusing on oil, rice exports, and investor sentiment.
What’s Happening?
The dispute between Iran and Israel has been ongoing for years, but tensions have risen sharply in recent times. On October 1, 2024, Iran launched approximately 180 missiles at Israel, the majority of which were intercepted by Israel’s defence system or fell short of their targets. This attack was Iran’s retaliation for the deaths of senior Hezbollah and Hamas leaders.
Earlier, in April, Iran had launched over 300 drones and missiles at Israel in response to an attack on an Iranian diplomatic building in Damascus, Syria, which resulted in the death of a senior Iranian general.
Impact on Oil Prices
Iran, a key member of OPEC, plays a major role in the global oil market. Following the recent missile strikes, the price of US West Texas Intermediate (WTI) crude oil surged by $1.09 to $70.92 per barrel. If tensions escalate further, oil prices may rise even higher, with India being one of the most affected.
India heavily relies on the Middle East for its oil supply, importing 80% of its oil needs. Any disruption in this supply could severely impact India’s economy. Rising oil prices would increase inflation, potentially hindering the central bank’s plans to cut interest rates and slowing economic recovery. Additionally, an increase in oil prices could widen India’s current account deficit (CAD) by 0.3%.
Impact on Basmati Rice Exports
India is Iran’s largest rice supplier, so an escalation in the Iran-Israel conflict could negatively impact India’s rice exports.
According to The New Indian Express, around 25% of India’s basmati rice exports are sent to Iran. However, to support its local crop, Iran has imposed a two-month import ban from October 21 to December 21, which is already affecting India’s exports.
Additionally, insurance companies have stopped providing coverage for exports to Iran, leading to a drop in basmati rice prices by Rs 800 per quintal.
Impact on Indian Stock Markets
The Iran-Israel conflict has also affected the Indian stock markets. By October 7, the Sensex and Nifty indices had dropped nearly 6% from their all-time highs due to the conflict and foreign institutional investors (FIIs) shifting their focus toward China.
What’s Next?
The ongoing Iran-Israel conflict is a matter of serious concern not just for India but for the world. India, which depends on these countries for its oil needs and rice exports, could face severe repercussions.
According to The Times of India, India is currently negotiating potential free trade agreements (FTAs) with several Gulf nations. These deals could boost trade and investment flows, but regional instability may hinder these plans.
Though the conflict is happening thousands of miles away, its impact on India’s economy could be direct. How long the conflict lasts and the direction it takes will determine the depth of its effects on India.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*This article is for informational purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
