Tenuous Truce

For India, the US-Iran conflict poses a plethora of diplomatic and trade challenges

AuthorPublished: 13th Jan 2020  12:08 am

Though both the United States and Iran appear to have backed off from further escalation for now, the turmoil in the Middle East is far from over. The tremors are bound to be felt across the volatile region and beyond. For India, the US-Iran conflict poses a plethora of diplomatic and trade challenges. If the tensions continue, India’s exports to the Persian Gulf nation would suffer. India’s exports to Iran in 2018-19 were worth Rs 24,920 crore while imports were valued at Rs 96,000 crore and the trade imbalance is mainly because of India’s import of oil from Iran. Both the countries are now in the process of holding negotiations for a bilateral preferential trade agreement (PTA) to increase trade. By ordering the killing of Qasem Soleimani, head of the Islamic Revolutionary Guards Corps (IRGC) Quds Force, the United States has displayed reckless adventurism that is bound to push the entire region into turmoil with disastrous implications. Though experts discount the danger of a full-fledged war as neither the US nor Iran wants one, there is always the danger of miscalculation. India will be one of the collateral casualties if there is any escalation of conflict in the region. The disruption of oil supplies will have a direct impact on the economy. The Middle East crisis couldn’t have come at a worse time for India Inc. as the economy could be at a tipping point of a major recession. Indian companies, which are already grappling with the sagging economic situation, now face the potential threat of higher costs, and therefore, a fall in margins. Apart from age-old civilizational links, Iran is important because of its vast oil and gas resources as well as its geopolitical location and market potential.

Iran provides the route through which India, blockaded by Pakistan, can fulfil its Eurasian ambitions. The Chabahar project provides a route to Afghanistan and Central Asia, while the International North South Transportation Corridor (INSTC) gives an overland access to Russia and Europe. Iran holds huge export opportunities in sectors such as agriculture, chemicals, machinery, pharmaceuticals, paper and paper products. It is now important for New Delhi to put in place a cohesive contingency plan to meet any situation in view of the needs of the country’s energy security and presence of a large diaspora in the region. India can also engage in diplomatic initiatives for de-escalation of tensions. As a nation that did not seek to profit from the Iran-Iraq war in the 1980s, India is widely respected in the Middle-East for its matured approach. The Gulf countries are an important source of oil for the country but as of last year, India terminated its imports from Iran because of the US sanctions.


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