How a full-blown Iran-Israel war may hurt India's trade

The escalation of conflict in the West Asian region is expected to push already high logistics costs besides hurting trade in sectors such as oil, electronics and agriculture, according to exporters.

They said that insurance costs for exports to the countries directly involved in the war could also go up, which will impact Indian exporters' working capital.

Think tank Global Trade Research Initiative (GTRI) stated that the conflict is already hurting India's trade with countries like Israel, Jordan, and Lebanon.

The Federation of Indian Export Organisations (FIEO) said the Iran-Israel conflict has the potential to significantly impact world trade and the global economy in several ways.

"Iran is a key player in the oil market.

"Any escalation in conflict could disrupt oil supplies, leading to higher prices, which would impact global economies, especially those reliant on oil imports.

Oil prices have already moved up by $4 per barrel," FIEO DG Ajay Sahai said.

Expressing concerns, he said increased tensions could destabilize the Middle East, affecting trade routes like the Strait of Hormuz, through which a significant portion of the world's oil passes.

"Disruptions could lead to higher shipping costs and delays.

"Many global supply chains depend on the stability of the Middle East.

"Conflict could disrupt transportation and logistics, affecting industries ranging from electronics to agriculture," Sahai said.

Further, if the western world would put sanctions or trade restrictions, it would further complicate the global trade dynamics, he said adding "overall, the conflict could lead to increased volatility in global markets".

Hand Tool Association chairman S C Ralhan said orders to these countries will be on hold and gradually it will be "very risky and difficult" to do trade in this region.

"Insurance costs will go up or even we may not get any insurance cover in that region," Ralhan said.

During January-July 2024, India's trade with countries directly impacted by the conflict has faced significant challenges.

"Exports to Israel dropped sharply by 63.5 per cent, Jordan saw a 38.5 per cent decline due to spillover effects, and Lebanon experienced a 6.8 per cent decrease," GTRI Founder Ajay Srivastava has said.

The Israel-Hamas war, which erupted in October 2023, has now extended to Lebanon, Syria, and is indirectly impacting Jordan and Iran.

Key regional players like Saudi Arabia, the UAE, Kuwait, and Qatar have thus far remained uninvolved in the conflict.

India's exports to Israel stood at $639 million during April-July this fiscal. It was $4.52 billion in 2023-24.

Imports from Israel were $469.44 million during the first four months of this fiscal.

It was $2 billion in 2023-24.

India's exports to Iran stood at $538.57 million during April-July this fiscal.

It was $1.22 billion in 2023-24.

Imports from Iran were $140.69 million during the first four months of this fiscal. It was $625.14 million in 2023-24.

Similarly, the country's exports to Jordan stood at $228.56 million during April-July this fiscal.

It was $1.46 billion in 2023-24.

Imports from Jordan were $699.28 million during the first four months of this fiscal.

It was $1.4 billion in 2023-24.

India's exports to Lebanon stood at $116.86 million during April-July this fiscal.

It was $344.91 million in 2023-24.

Imports from that country were $39 million during the first four months of this fiscal.

It was $113 million in 2023-24.

India's major items of exports to West Asian countries include basmati rice, man-made yarn, fabrics, gems and jewellery, cotton yarn, and fabrics.

India is Israel's second-largest trading partner in Asia.

Though the bilateral merchandise trade is dominated mainly by diamonds, petroleum products, and chemicals, recent years have witnessed an increase in trade in areas such as electronic machinery and high-tech products, communications systems, and medical equipment.