India on Alert: How Will the Israel-Iran Tensions Impact the Economy?

As per the Global Trade Research Initiative (GTRI), escalating tensions in West Asia pose significant threats to India's energy security. This can severely affect its commercial ties and trade routes.  

How Israel-Iran Tensions Will Impact India’s Energy Security? 

Almost two-thirds of India's crude oil and half of its Liquid Natural Gas (LNG) imports travel through the Strait of Hormuz. This narrow waterway, only 21 miles wide at its narrowest, handles nearly a fifth of the world's oil trade.  

With Iran now posing a threat to this strait, any disruption could send oil prices soaring, dramatically increase shipping costs, and raise insurance premiums. Since India relies on imports for over 80% of its energy needs, such disruptions could fuel inflation, weaken the Indian Rupee, and complicate the government's financial planning. 

Impact of Middle East Tensions on India’s International Trade 

Israel-Iran tensions can also potentially affect India’s cross-border trade. As per GTRI, around 30% of India's exports heading west to Europe, North Africa, and the U.S. East Coast pass through the Bab el-Mandeb Strait. This route is now vulnerable to closure.  

If ships are forced to take the much longer route around the Cape of Good Hope, transit times could increase by two weeks, and freight costs would rise significantly. This would directly impact Indian exports like engineering goods, textiles, and chemicals, and raise the cost of essential imports. 

What Does the GTRI Report Say About India on Israel-Iran Tensions? 

The intensifying Israel-Iran conflict, sparked by Israel's "Operation Rising Lion" and Iran's retaliatory missile strikes on June 13, is already leading to rising casualties. Regional financial markets are feeling the pressure. GTRI highlights that India has substantial trade exposure to both nations, and taking pragmatic steps is crucial for the government to safeguard economic growth. 

Read more:  As India’s AC Usage Rises, Can a Temperature Cap Meet the Challenge? 

Conclusion 

The Iran-Israel conflict, though distant, can manifest as tangible challenges for India’s economy. Potential disruptions to vital energy arteries like the Strait of Hormuz could trigger escalating oil prices, rising freight costs, and inflationary pressures. This could potentially impact corporate earnings and currency valuations in the future. 
 
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