- Iran’s attack on Israel earlier this week heightened tensions in the Middle East and abroad. India, which maintains friendly relations with both countries, has raised “serious concerns” about the rise of hostility.
India-Israel trade has doubled during the last five years
- India began diplomatic relations with Israel in 1992. Since then, commerce between the two countries has increased dramatically, from approximately $200 million in 1992 (mainly for diamonds) to $10.7 billion (excluding defence) in the fiscal year 2022-23.
What are the key components of India’s trade with Israel?
- According to India’s 8-digit Harmonised System code, which classifies trade commodities, the most valuable items sent by India to Israel were diesel, diamonds, aviation turbine fuel, radar apparatus, Basmati rice, T-shirts, and wheat.
The value of India-Iran commerce has decreased in the recent five years
- India’s trade with Iran has decreased in recent years, but is expected to increase in fiscal year 2022-23. It climbed by 21.77%, from $1.94 billion in 2021-22 to $2.33 billion in 2022-23.
Israel and Iran do not have considerable FDI in India
- Israel’s Foreign Direct Investment (FDI) in India is quite low, accounting for only 0.4% of total FDI inflows from April 2000 to December 2023. FDI from Israel to India totaled $288 million during this time.
- Indian Investment in Israel: In contrast, Indian enterprises have invested more in Israel, with cumulative Overseas Direct Investment (ODI) of around US$ 383 million between April 2000 and May 2023.
- India’s investment in Iran: India is developing the first phase of the Shahid Beheshti Port in Chabahar, Iran. This programme seeks to strengthen India’s connectivity and trade ties with the Middle East and Central Asia.
How might Middle East tensions affect the Indian economy?
- Impact on Trade Routes: Tensions in the Middle East, particularly in the Red Sea region, might impede critical trade routes linking Europe and Asia. This route accounts for approximately 12 percent of global trade, which may have an impact on Indian trade..
- Shipping delays: Since November 2023, Yemen-based rebels known as the Houthis have targeted ships sailing through the Red Sea, causing shipping interruptions. This could intensify India’s trade issues.
- Stability Concerns in West Asia: The war between Iran and Israel exacerbates instability in the region, potentially delaying projects such as the Middle East-Europe Economic Corridor.
- Impact on petroleum prices: While the protracted fighting is unlikely to severely impair crude oil and gas output, shipping disruptions in the Red Sea could drive up oil and gas prices. However, the impact on Indian consumers may be minor because the government can counteract price rises by lowering taxes.
Conclusion:
India’s good relations with both Israel and Iran give a chance for diplomatic engagement to help reduce the escalation of hostilities in the area. By actively participating in diplomatic efforts to de-escalate tensions and foster dialogue, India can contribute to regional stability while also protecting its economic interests.
Source: https://indianexpress.com/article/explained/explained-economics/india-israel-iran-trade-oil-prices-tensions-9277472/