Will the US-Israel-Iran War and Iran’s Gulf Attacks Trigger a Major Crisis for India’s Oil, Trade, and Economy?

Will the US–Israel–Iran War and Iran’s Gulf Attacks Trigger a Major Crisis for India’s Oil, Trade, and Economy?

KAKALI DAS

The problems of West Asia are no longer distant events that concern only a particular region. They accelerating rapidly and intensely, and even countries that are not directly involved in the conflict are feeling the impact.

India may not be a party to the ongoing tensions and possible war in West Asia, but it cannot escape the consequences. The effects of instability in this region are so wide and deep that India will inevitably feel the heat in many ways.

At present, the situation in West Asia appears extremely fragile. Major global powers such as the United Kingdom, Germany, and France have taken positions that could deepen the conflict. Iran is at the centre of these tensions. The death of Iran’s Supreme Leader has created further uncertainty, and proxy wars are intensifying across the region. Groups such as Hezbollah, the Houthis, and Hamas are active in different conflict zones.

The region that once served as a gateway for energy supplies and trade routes is now witnessing growing instability. For India, this region has always been of immense importance because it supplies oil, provides employment to millions of Indians, and acts as a crucial trade partner.

Some people may think that since India is geographically distant from West Asia, the impact will be limited. However, this assumption is incorrect. Even though India is not directly participating in the war, the consequences will reach Indian shores in the form of economic pressure, energy insecurity, trade disruptions, and domestic challenges.

India’s connection with West Asia is not only geographical but also economic and social. The Indian government has been closely monitoring the situation. The Prime Minister has held discussions with leaders from the region, including Israel, to understand developments and ensure that India’s interests are protected. This itself shows that the crisis is a matter of serious concern for India.

One of the most immediate and serious threats to India is energy security. India imports about 80 to 85 percent of its crude oil needs from abroad, and a large portion of this comes from West Asian countries. If the conflict disrupts major shipping routes, India’s oil supply could face serious challenges. Two key routes are particularly important in this context. The first is the Strait of Hormuz, which is one of the world’s most critical oil transit chokepoints. Iran has threatened to close or disrupt this route in response to hostilities. If this happens, oil shipments from the Persian Gulf could be severely affected.

The second important route is the Red Sea shipping lane. Yemen is located along this route, and the Houthis, who are considered aligned with Iran, have been active in attacking ships. If both the Strait of Hormuz and the Red Sea routes become unsafe or blocked, the global oil supply chain will be disrupted. This will not only affect India but the entire world.

When oil supply is disrupted, global oil prices rise. Higher oil prices lead to higher fuel prices in India. This does not just mean that people will pay more for petrol and diesel. It also affects the cost of transportation, manufacturing, and everyday goods. As transportation becomes more expensive, the price of essential commodities rises. This leads to inflation. Inflation reduces the purchasing power of ordinary citizens and puts pressure on household budgets.

In addition to petrol and diesel, India also imports liquefied petroleum gas, which is used for cooking in millions of homes. If LPG supplies become irregular or more expensive, households may face difficulties. The government may have to increase subsidies to protect consumers from rising prices. This will put additional pressure on the national budget.

An oil shock can quickly turn an external conflict into a domestic economic crisis. Higher import bills increase the current account deficit. This means that India spends more foreign currency on imports than it earns through exports. When the current account deficit rises, it puts pressure on foreign exchange reserves. If foreign exchange reserves decline, the value of the Indian rupee may weaken against the US dollar. A weaker rupee makes imports even more expensive, creating a cycle of economic stress.

In recent years, the rupee has already faced pressure. A major oil crisis could make the situation worse. The Reserve Bank of India may have to intervene to stabilize the currency, but continuous intervention also reduces foreign exchange reserves. Monetary policy decisions become more complicated when inflation rises and currency stability is threatened.

Trade disruption is another serious concern. The Strait of Hormuz and the Red Sea are not only important for oil shipments but also for general trade. If these routes are disrupted, shipping costs will increase. Insurance premiums for ships traveling through conflict zones will rise sharply. Shipping companies may choose longer and safer routes, which will increase transit time and cost.

West Asia is an important market for Indian exports. India exports engineering goods, gems and jewellery, food products, and pharmaceuticals to many countries in the region. If trade routes are blocked or if conflict affects demand in these countries, Indian exports may decline. When exports decline, India earns less foreign currency. This again affects foreign exchange reserves and puts pressure on the rupee.

Airspace closures in several West Asian countries add another layer of complexity. Aviation logistics become more expensive and time consuming. Flights may need to be rerouted, leading to higher fuel consumption and operational costs. The combined effect of shipping disruption and aviation challenges can fragment supply chains and create uncertainty in global trade.

Another major concern is the safety and well being of Indian citizens living in West Asia. It is estimated that more than nine million Indians work in the Gulf region. These workers send significant remittances back to India. Remittances form an important part of India’s foreign exchange earnings and support millions of families.

If the conflict escalates and economic activity in the region slows down, Indian workers may lose jobs. Remittances could decline sharply. India has experienced a similar situation in the past. During the Gulf War in the early 1990s, many Indians had to return home, and remittance inflows were affected. If a large number of Indians have to be evacuated again, the government will face logistical and financial challenges.

Evacuation during a conflict is not easy. When airspace is closed and sea routes are unsafe, bringing citizens back becomes complicated. The Indian government has already begun monitoring the situation closely and issuing advisories through embassies. Ensuring the safety of Indian nationals is a top priority, but it requires careful planning and coordination.

The human aspect of the crisis does not end with citizens abroad. Developments in West Asia can also have domestic social and political repercussions in India. For example, the death of a prominent religious or political leader in the region can trigger emotional responses among certain communities in India. Religious and political mobilization may occur. In such situations, the government must ensure that law and order is maintained and that misinformation is controlled.

Social media can spread rumours quickly, increasing tensions. Managing misinformation and preventing communal disharmony become crucial tasks. An external conflict can thus create internal challenges if not handled carefully.

India’s diplomatic position in this crisis is extremely delicate. India maintains strong relations with all major players in the region. It has strategic partnerships with Israel and the United States. At the same time, it has historical and economic ties with Iran. India also has close relations with Gulf countries such as Saudi Arabia and the United Arab Emirates.

In such a complex environment, India must practice strategic autonomy. This means maintaining balanced relations without openly siding with any one party. Taking a clear side could harm India’s interests with others. At the same time, complete isolation is not an option. India’s voice and diplomatic efforts could help in reducing tensions and encouraging dialogue.

Multi alignment has been a key feature of India’s foreign policy. By maintaining relationships with all sides, India can act as a bridge and possibly contribute to peace efforts. However, this approach requires careful communication and consistent policy decisions.

The economic effects of the West Asia crisis are already visible in financial markets. Stock markets react quickly to geopolitical tensions. Investors become cautious, leading to market volatility. Gold prices often rise during times of uncertainty because investors consider gold a safe asset. The rise in gold prices reflects global anxiety.

If the crisis continues for a long time, economic growth in India could slow down. Higher fuel prices increase production costs. Reduced exports limit revenue. Fiscal stress may rise if the government increases subsidies. Monetary policy may become tighter to control inflation, which could reduce investment and consumption. All these factors together can slow economic momentum.

The situation makes it clear that geographical distance does not protect India from global crises. West Asia is often described as India’s extended neighbourhood because of deep economic, social, and political links. What happens there has direct consequences here.

In the short term, India must focus on securing energy supplies. It can diversify oil imports by increasing purchases from other regions. Building and maintaining strategic petroleum reserves is essential to manage temporary disruptions. Close coordination between the government, oil companies, and the Reserve Bank of India will be necessary to manage inflation and currency stability.

India should also strengthen diplomatic efforts to ensure the safety of its citizens. Clear evacuation plans must be prepared in advance. Embassies should remain in constant contact with the Indian community abroad. Transparent communication will reduce panic and confusion.

In the long term, India must reduce its dependence on imported oil. Expanding renewable energy capacity, promoting electric vehicles, and encouraging energy efficiency can gradually reduce vulnerability. Investing in domestic oil and gas exploration may also help.

Trade diversification is equally important. India should explore new markets and strengthen regional trade partnerships. Improving domestic manufacturing and boosting exports of high value products can make the economy more resilient.

Financial stability measures should be strengthened. Maintaining adequate foreign exchange reserves, prudent fiscal management, and balanced monetary policies will help India withstand external shocks. The lessons from past crises should guide future planning.

The crisis in West Asia is a reminder that global interdependence brings both opportunities and risks. While India benefits from trade, energy imports, and remittances from the region, it also becomes vulnerable to instability there. The challenge lies in managing these risks through foresight, diplomacy, and economic reform.

India may not be fighting on the battlefield, but it will certainly feel the impact of the conflict. The rise in crude prices, pressure on the rupee, stock market volatility, and social concerns are real and immediate. Careful policy decisions, strategic autonomy, and long term planning will determine how effectively India navigates this difficult period.

Mahabahu.com is an Online Magazine with collection of premium Assamese and English articles and posts with cultural base and modern thinking.  You can send your articles to editor@mahabahu.com / editor@mahabahoo.com (For Assamese article, Unicode font is necessary) Images from different sources.