The Iran-U.S. confrontation also known as Persian Gulf Crisis of 2019-20 is a ramification of intensifying relationship between two countries. Since 1980s, there are no such bitter diplomatic relations existed between the two countries. Today, turbulent tensions have reached at an implacable level. In 2015 U.S. President signed a nuclear deal with Iran and other countries to dismantle nuclear power of Iran. As per the agreement, sanctions on Iran by U.S. were lifted only when Iran compiled with the deal. But in 2018, Trump moved out of Joint Comprehensive Plan of Action (JCPOA) and imposed new sanctions on Iran. U.S. termed Islamic Revolutionary Guard Corps (IRGC) as terrorist organization. These measures proved to be inimical for Iran’s economy. In stringent retort, Iran identified U.S. Central Command as terrorist organization. Finally, the feud between the countries reached at its unprecedent boiling point when Iranian commander General Qasem Soleimani was killed in an airstrike in Iraq by U.S. They alleged that Soleimani was responsible for death of hundreds of American and was planning for imminent attacks. Incident exasperated Iran and with vindictive approach Iranian forces attacked on American personnel through ballistic missiles. However, no significant casualties were reported. Heightened tensions between the countries have left all the global powers perturbed over its impact on the economy. Escalation had already resulted in increasing crude oil prices and is expected to further increase if tensions between the countries intensify.
Inflation level has already soared due to increasing oil prices. India which is already suffering from slowdown in its economy is particularly pre-occupied about the hyped tension between the countries. India is world’s third largest consumer of oil. India has strong trade relations with Iran and U.S. Talking about trade with Iran, India’s gross exports and imports during April 2018 – Feb 2019 amounted to nearly U.S. $2916.46 million and U.S. $12724.19 million respectively. Therefore, Indian economy is ineluctably expected to be affected to a significant extent with escalating tensions between the countries. Our former Prime Minister Pandit Jawaharlal Nehru once said, “Few people have been more closely related in origin and throughout history than the people of India and the people of Iran”. Thus, Iran is culturally, economically and strategically very significant from India’s perspective. But lingering uncertainties prevailing in the back drop is going to adversely affect India’s sagging economy. At the time when India is already struggling to recover from the recent slowdown in economy, there is possibility of disruption in crude oil supply and even triggering inflation. Immediate concern for India is impact of rising international prices of oil that soared 4% following the Iranian commander death news. Brent crude futures jumped to $69.16 a barrel nearly increase of $3 a barrel. West Texas Intermediate, an oil benchmark crude future rose $1.76 nearly 2.9% to $62.94 a barrel. At present, India imports more than 80% of its oil requirements, even a marginal increase in oil prices will ultimately lead to rise in its oil imports bill. After U.S. sanctions were re-imposed by US President Trump, many countries including India resisted importing oil from Iran. But any unrest in volatile region could have tremendous impact on imports from other Gulf countries too. India’s shares slumped in response to reports of Soleimani’s death and again after Iran’s retaliatory strike. Share values of India’s biggest companies including HPCL, BPCL and IOC all tumbled following the news. Another reason for concern is Strait of Hormuz. It is a narrow waterway through which export of nearly 25 per cent of global oil consumption take place. If Iran blocks this waterway, massive disruption in oil supply is possible. Blockage of this waterway will have devastating impact on all economies of world making it arduous for India which had $78 billion trade in 2019 and for other countries to trade with mid-east. Chabahar port is another reason for concern. It is an ambitious gateway to target Afghanistan and Central Asia. India has made an investment with Iran worth $85 million for development of this port. Increasing tension in Gulf region can adversely affect development and operation of this port.
India’s another significant concern is its 8 million nationals who are residing in Gulf region. Rising tensions in the region will definitely require some safety measures on the part of Indian government to ensure security of these people. There is annual remittance of about $40 billion to India from these expatriates. These remittances are considered as a major source of foreign exchange. At the time when India is already struggling with rising food prices, it does not want any further rise in inflation level due to such unwanted international tremors. In order to avoid any further geo-pol and military ego clashes, all major economies have suggested for de-escalation of tension between the two countries. Continuous efforts have been made to restore peace and stability in the region. In the arena of globalization, potential economies must ensure co-operative competition and intellectual engagements for comprehensive framework for a meaningful economic growth and sustainable development and this is possible only when de-escalation takes place amid tensions between two nuclear countries.
(Writer is a student of FoC, BHU and Member of Finance and Economics Think Council)