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Escalation of the Iran-Israel conflict has triggered tensions in India as it grapples with the prospects of rising oil prices and freight charges, restricted air/sea-routes, disruption of trade and supply chains.
The country’s ambitious Chabahar port project in Iran faces uncertainty as the US may tighten sanctions against Tehran.
“If the Middle East conflict affects, other oil producing countries or key routes/ trade channels such as the Strait of Hormuz (which Iran straddles) oil and natural gas supplies would be impacted,” said Prashant Vasisht, Senior VP & Co-Group Head (Corporate Ratings), ICRA.
“Iran, Israel or Lebanon are not significant oil trade partners for India but in the event of a wider middle eastern conflict, it can impact India’s continued reliance on Middle Eastern crude oil,” said Pulkit Agarwal, Head of India Content (cross commodities) S&P Global Commodity Insights. India imported over 45 per cent of its crude requirement from the Middle East in September.
Uncertainty looms
Traders are anxious about the possible escalation of shipping and logistics costs, said Ajay Sahai from exporters’ body FIEO. “Some movement of small ships had started through the Red Sea but now with Houthis taking a position, that will also be very difficult. There will be a greater pressure on the longer route (Cape of Good Hope),” Sahai said.
The uncertainty is affecting trade and business more.
“Apart from oil, India imports items such as petrochemicals and plastic polymers from the region. Our exports are more diversified as we ship items ranging from machinery to agriculture products,” Sahai said, adding that air routes may also get affected if US and European airlines avoid Iran air space.
Another big area of concern for India would be the Chabahar port in Iran.
“In May, we did the 10-year deal on the Chabahar port (development and operation), which was a bold step as it was going against US sanctions. It would provide connectivity with the Eurasian region with which India is also negotiating a free trade pact. There is a big possibility that the US will ensure that its sanctions against Iran are maintained,” said Biswajit Dhar, Distinguished Professor, Council for Social Development.
In a conflict zone, strategic assets get hit, so the port project is at great risk, he added.
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