The ongoing Israel Iran war has unleashed not only a massive aerial assault with missiles and drones causing heavy destruction in both the countries but could potentially impact global economy including India with whom the two have trade relations.
Amid Israel Iran war how India’s trade, economy are at risk? These key sectors most vulnerable, price of these commodities likely to rise
The ongoing Israel Iran war has unleashed not only a massive aerial assault with missiles and drones causing heavy destruction in both the countries but could potentially impact global economy including India with whom the two have trade relations. India is one of their biggest exporters which in turn import various commodities from them in large numbers. The trade dynamics between these countries and India are most likely to be affected and could lead to increase in crude oil prices in India as it imports a large part of its oil and gas from here. This could affect inflation and economic growth as well.
Effect on crude oil prices
India’s crude oil imports from countries globally amount to 85% of its total oil requirements. Of this, Iran’s oil exports to India are very low but it is one of the biggest names in the list of global oil-producing nations. Upon the start of the war between Israel and Iran, crude oil prices have increased drastically as they have gone up by more than 11%. Prices of Brent crude crossed USD 75.32 per barrel mark, and West Texas Intermediate (WTI) crude oil stands at USD 73.42 per barrel.
India buys oil based on Brent prices, so any increase in those prices directly makes India’s oil purchases more expensive. In case this war goes further, crude oil prices may likely see an increase which is a big factor as it impacts India’s overall imports. This will spiral in increasing the prices of petrol, diesel, gas, aviation turbine fuel (ATF), and more.
Effects on rupee
This has affected the rupee as well, which dropped sharply. On Friday, it started at 86.14 per US dollar, 54 paise weaker than the previous day’s rate of 85.60. This is due to oil prices going up, in which case companies need more US dollars to pay for oil. As demand for dollars goes up, inversely the rupee becomes weaker which makes oil even more expensive to import.
Inflation
Energy prices play a significant but less visible role in impacting the cost of many commodities. Even if fuel rates- petrol and diesel- are maintained temporarily by the government, the cost of transportation of goods would still see an increase and slowly this can lead to inflation, when prices of goods and services rise.
Imports from Israel
- India is Israel’s second-largest trading partner in Asia and the 9th largest globally. India imports these goods and services from Israel.
- Electrical and electronic equipment
- Arms and ammunition
- Optical, photographic, technical, and medical instruments
- Fertilizers
- Machinery, nuclear reactors, and boilers
- Aluminum and various chemical products
- Pearls, precious stones, metals, and coins
Imports from Iran
- Organic chemicals
- Edible fruits and nuts
- Mineral fuels and oils
- Salt, sulfur, earth, stone, plaster, lime, and cement
- Plastics and plastic products
- Iron and steel
- Vegetable products like gums, resins, and lac