Iran-Israel Conflict and India’s Oil Trade
- April 16, 2024
- Posted by: OptimizeIAS Team
- Category: DPN Topics
No Comments
Iran-Israel Conflict and India’s Oil Trade
Subject: IR
Section: Places in news
- Impact of Escalation:
- Escalation in the Iran-Israel conflict could affect India’s crude oil imports.
- Geopolitical tensions in West Asia may increase risk premiums and raise concerns about supply disruptions.
- India relies on imports for over 85% of its crude oil needs.
- Importance for India’s Economy:
- India’s economy is highly sensitive to oil price volatility.
- High oil prices can lead to inflation, affect trade balance, foreign exchange reserves, and the value of the rupee.
- Recent Developments:
- Global benchmark Brent crude breached $90 per barrel due to tensions.
- Prices were already rising due to production cuts by major producers.
- Speculations on Prices:
- Analysts suggest oil prices could reach $100 per barrel if conflict impacts oil availability.
- Concerns about supply and transportation disruptions or attacks on production facilities.
- Impact on India’s Imports:
- India currently does not import Iranian oil due to US sanctions.
- Potential impact on competition with China for oil from other suppliers, especially Russia.
- Crude Suppliers to India:
- India imports from West Asian suppliers like Iraq, Saudi Arabia, and the UAE.
- Potential disruption could impact supplies and prices.
- Key Concerns:
- Strait of Hormuz is crucial for India’s West Asian oil supplies.
- Any disruption could lead to panic buying by Indian refiners.
- Refiners’ Response:
- India’s crude suppliers are diverse and large.
- Refinery sector officials monitoring the situation, concerns about price upswing.
- Financial Impact:
- High oil prices may pressure refiners and fuel retailers’ financials.
- Possibility of losses on fuel sales unless retail prices are adjusted.
- Refiners closely watching situation to assess future impacts.
- India’s Crude Suppliers:
- March 2024: Russia was India’s top source of crude (33% of imports).
- Cumulative share of Iraq, Saudi Arabia, and the UAE was almost 48% in India’s total oil imports.
Key points
The ‘Axis of Resistance’:
The ‘Axis of Resistance’ refers to a coalition of groups and entities primarily aligned against Israel and its allies in the Middle East. It includes:
- Hamas: A Palestinian militant Islamist group controlling the Gaza Strip.
- Hezbollah: A Lebanese Shia Islamist political party and militant group.
- Houthi Movement: A Yemeni rebel group known formally as Ansar Allah.
- Various Shi’ite armed groups in Iraq and Syria, often backed by Iran.
These groups are united by their opposition to Israel and, often, to Western influence in the region. They coordinate efforts and share resources to resist what they perceive as threats to their interests and territories.
Impact of Israel-Hamas Conflict on India:
India, as a net importer of crude oil, could be affected by prolonged conflicts such as the Israel-Hamas war in the following ways:
- Increased Import Bill: Rising oil prices due to conflict can lead to higher import bills for India.
- Petrol and Diesel Prices: Elevated global oil prices can translate to higher petrol and diesel prices domestically.
- Inflationary Pressures: Higher fuel prices can contribute to overall inflation.
- Fiscal Deficits: Government subsidies to control fuel prices could impact fiscal deficits.
- Currency Depreciation: A rise in import bills can put pressure on the Indian rupee.
- Economic Growth: Prolonged conflicts may lead to economic uncertainty and impact overall growth prospects.