A yr of Israel-Hamas war: Trade with W Asia holds steady

A year after a Hamas attack against Israel on October 7 and the ensuing Israeli invasion of the Gaza Strip, India’s trade with most West Asian countries has largely escaped any major disruption, except with countries like Israel, Lebanon, and Jordan.

However, repeated flare-ups of geopolitical tensions in the region continue to drive up shipping and logistics costs.

The conflict has led to two wide-scale missile attacks on Israel by Iran, a limited ground offensive by Israel into neighboring Lebanon to confront the Tehran-aligned Hezbollah, and maritime attacks by Yemeni Houthi rebels on Israel-bound ships.

There are fears of the conflict escalating and further inflaming the troubled region, which accounts for almost a third of global crude oil production.

Despite this, crude oil flows from West Asia have remained robust.

More importantly, India’s trade with the Gulf Cooperation Council (GCC) — comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates — has remained robust.

During the first seven months of the calendar year, exports to GCC nations grew by 17.9 per cent year-on-year (Y-o-Y) to $34.9 billion.

Similarly, imports grew 10 per cent at $68.92 billion during January-July, according to latest commerce department data.

Among other West Asian countries — Iran, Iraq, Israel, Jordan, Lebanon, Syria, and Yemen — exports contracted by nearly a third to $5.58 billion during January-July.

As much as 59 per cent of the $5.58 billion worth of goods were exported to Iraq and Israel.

Overall exports from Israel contracted by 63 per cent in January-July to $1.29 billion.

Similarly, imports contracted by 29 per cent to $974 million.

Israel also dropped to India’s 47th largest trade partner in 2024, down from 32nd position in FY24.

Exports to Jordan and Lebanon, though relatively smaller, saw contractions of 38.3 per cent and 6.8 per cent, at $637.97 million and $197.96 million, respectively.

Biswajit Dhar, distinguished professor at the Council for Social Development, said India has not experienced a major impact from the war, partly because the main source of crude oil has shifted from West Asia to Russia.

“Conflict in the Red Sea, with Houthis attacking vessels, has been sporadic.

"Besides, cargo traffic has been rerouted via the Cape of Good Hope.

"However, going forward, Israel-Iran tension could be a major source of trouble,” Dhar said.

“Until now, Israel has attacked countries that have little power to retaliate. As a result, it has been one-way traffic.

"Once they start attacking Iran seriously, there could be major retaliation from Iran,” he added.

Dhar said the ripple effects of this tension on trade would depend on how serious the Iran-Israel conflict becomes.

Risk raises freight charge

While violence following the initial attack didn’t immediately impact the maritime economy, the conflict’s expansion to other actors, such as the Houthis in November, caused global shipping to spiral downward at the end of 2023, with dozens of vessels attacked by the Yemeni militant group, prompting major shippers to avoid the Red Sea entirely.

War risk insurance premiums and other surcharges also increased for shipping companies.

With ships having to take a detour around Africa, industry estimates showed a single tanker voyage between Asia and Northwestern Europe now costs shippers an additional $1 million and involves delays of weeks.

Between October 2023 and now, composite freight rates for East-West routes have risen by 151 per cent to $3,489 per 40-foot container, with sizable increases in China-Europe and China-US rates.

As supply chains reshuffle due to volatile international waters over the past year, along with a resurgence of Somali pirates in the Indian Ocean, the Drewry World Container Index rose to nearly $6,000 per 40-foot container in July, up from a base of $1,300 in October 2023.

Oil not on fire yet

Despite the series of regional conflicts erupting across West Asia as a result of the Hamas attack, fears of a potential disruption in the supply of crude oil from the region have not materialised.

Although the geopolitical risk premium on oil caused prices to rise immediately after the attack on October 7, a region-wide fluctuation in oil production and exports did not occur, officials said.

A key reason has been Iran’s decision not to block the Strait of Hormuz, through which over half of all crude oil and at least 80 per cent of the natural gas purchased by India pass.

Meanwhile, the Gaza Strip and Israel are situated far from major oil-producing regions.

In the first four months of this financial year, Iraq, Saudi Arabia, and the United Arab Emirates continued to be the second, third, and fourth-largest sources of crude oil for India, following Russia, according to official data.

The share of crude from these nations has increased over the past few months, despite ongoing discounts on Russian crude oil, as the government prioritises diversifying its oil imports.