GS-2:Bilateral, Regional and Global Groupings and Agreements involving India and/or affecting India’s interests;Effect of Policies and Politics of Developed and Developing Countries on India’s interests, Indian Diaspora.

In News: How a direct Israel-Iran conflict affects India: From long trade routes and higher shipping rates to increased risk for the India-Middle East-Europe economic corridor

1.How has the escalating conflict in West Asia impacted India’s trade relations with the region? Discuss the potential implications for India’s economic growth and its strategic interests in the Middle East.

The escalating conflict in West Asia has significantly impacted India’s trade relations with the region, leading to various challenges and implications for its economic growth and strategic interests.

Impact of escalating conflict in West Asia on India’s trade relations:
I.Disruption of shipping routes
● Increased risk of inaccessibility to the Red Sea and Suez Canal due to conflict.
● Higher shipping costs and delays affecting Indian exporters, particularly in the petroleum and textile sectors.
● Notable decline in petroleum exports by 38% in August 2024 due to rising freight rates and logistical challenges.

II.Energy security concerns
● Over 80% of India’s oil imports come from the Middle East; instability can lead to fluctuations in global oil prices.
● Political instability and armed conflicts in the region can disrupt oil production and transportation, leading to supply shortages

III.The conflict can deter foreign investors from investing in the region, including India.
Implications for India’s economic growth

1. Strain on key export sectors:Sectors reliant on stable trade routes, such as machinery, steel, gems, and textiles, may face declining performance.
2. Increased freight costs could reduce profit margins for low-value exports, affecting small and medium enterprises (MSMEs).
3. Potential increase in oil prices could contribute to domestic inflation, impacting overall economic growth.
4. Remittances:
   ● Worker safety: The conflict can pose risks to Indian workers employed in the region, affecting their ability to send remittances home
   ● Economic impact: A decline in remittances can negatively impact India’s economy, particularly in rural areas.

Strategic interests in the Middle East
● India’s strategic interests in the Middle East are often intertwined with the conflict, making it difficult to maintain neutral trade relations.
● The Chabahar Port project may face operational disruptions, hindering India’s access to Afghanistan and Central Asia.
● The India-Middle East-Europe Economic Corridor (IMEC) could be jeopardised, complicating infrastructure development and connectivity efforts.

Way forward:
● India must navigate complex relationships with Israel and various Arab states amid rising tensions.Enhanced diplomatic efforts are needed to mediate conflicts and secure investments and trade routes.
● “De-risking” India’s trade strategies,involving diversifying of trade routes and enhancing connectivity to mitigate reliance on vulnerable shipping lanes affected by geopolitical tensions

PYQ

1. ‘India’s relations with Israel have, of late, acquired a depth and diversity, which cannot be rolled back.” Discuss. 2018
2. The question of India’s Energy Security constitutes the most important part of India’s economic progress. Analyse India’s energy policy cooperation with West Asian Countries.2017

Source:https://indianexpress.com/article/business/israel-iran-conflict-red-sea-route-trade-disruption-silver-lining-india-9599299/