From UPSC perspective, the following things are important :
Prelims level: NA
Mains level: How could Middle East tensions impact the Indian economy?
Why in the news?
Iran’s attack on Israel earlier this week has sparked tensions in the Middle East and beyond. India, which has friendly ties with both the countries, has expressed “serious concerns” about escalation of hostilities.
India-Israel trade has doubled in the last five years
- India established diplomatic relations with Israel in 1992. Since then, trade between two countries has been rising significantly, from around $200 million in 1992 (comprising primarily of diamonds), to $10.7 billion (excluding defence) in the Financial Year 2022-23.
What are the main components of India’s trade with Israel?
- Based on India’s 8-digit Harmonized System code, under which trade items are classified, the most valued items exported by India to Israel included diesel, diamonds, aviation turbine fuel, radar apparatus, Basmati rice, T-shirts, and wheat.
Value of India-Iran trade came down in the last five years
- India’s trade with Iran has seen a contraction in recent years, before an uptick in the FY 2022-23. It increased by 21.77 per cent — from $1.94 billion in 2021-22 to $2.33 billion in 2022-23.
Israel and Iran do not have significant FDI in India
- Israel’s FDI in India: Israel’s contribution to Foreign Direct Investment (FDI) in India is relatively low, accounting for just 0.4% of the total FDI inflows between April 2000 and December 2023. FDI from Israel to India amounted to $288 million during this period.
- Indian Investment in Israel: Conversely, Indian firms have invested more in Israel, with cumulative Overseas Direct Investment (ODI) reaching around US$ 383 million from April 2000 to May 2023.
- India’s Investment in Iran: India is involved in developing the first phase of the Shahid Beheshti Port at Chabahar in Iran. This initiative aims to enhance India’s connectivity and trade relations with the Middle East and Central Asia.
How could Middle East tensions impact the Indian economy?
- Impact on Trade Routes: Tensions in the Middle East, particularly in the Red Sea region, could disrupt crucial trade routes connecting Europe and Asia. Roughly 12 percent of global trade depends on this route, potentially affecting India’s trade.
- Shipping Disruptions: Yemen-based militants, known as the Houthis, have targeted ships passing through the Red Sea since November 2023, leading to shipping disruptions. This could exacerbate India’s trade problems.
- Stability Concerns in West Asia: The conflict between Iran and Israel adds to the instability in West Asia, potentially delaying projects like the Middle East-Europe Economic Corridor (IMEC).
- Impact on Petroleum Prices: While the ongoing conflict may not significantly disrupt crude oil and gas production, shipping disruptions in the Red Sea could lead to higher oil and gas prices. However, the impact on Indian consumers may be minimal as the government could offset price increases by reducing taxes.
Conclusion: India’s friendly ties with both Israel and Iran provide an opportunity for diplomatic engagement to mitigate the escalation of hostilities in the region. By actively participating in diplomatic efforts to de-escalate tensions and promote dialogue, India can contribute to regional stability and safeguard its economic interests.
Mains PYQ
Q There arose a serious challenge to the Democratic State System between the two World Wars.” Evaluate the statement. (UPSC IAS/2021)
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