Ongoing West Asia war, US strike keep Indian exporters under pressure

Among the other West Asian countries-Iran, Iraq, Israel, Jordan, Lebanon, Syria and Yemen-the value of the trade with Iraq and Israel is the highest.

Indian exporters are increasingly anxious about the intensifying conflict in West Asia, which now directly involves three countries -- Israel, Lebanon, and Iran. The potential for further escalation raises fears of rising shipping costs, disruptions to supply chains, and increased oil prices.
 

Compounding these challenges is a workers' strike in East and Gulf Coast ports of the US, India’s largest trading partner and biggest export destination.

Ajay Sahai, director-general and chief executive officer of the Federation of Indian Export Organisations (FIEO), noted that while an immediate impact of the latest flare-up in West Asia has yet to be observed, oil prices could rise significantly if the conflict deepens. Brent crude price has been rising for the past two days, and was near $74 a barrel at around 9.15 pm IST.

“Firstly, Iran is a key oil supplier, despite sanctions. Should tougher sanctions be imposed on Iran, we risk losing a crucial supplier from the market, which would likely push oil prices higher. Secondly, the regional instability will exacerbate these issues,” Sahai explained.

Moreover, any disruption in the flow of goods through the Strait of Hormuz — located between Oman and Iran — will lead to increased shipping costs. “Even air routes are being affected following Iran’s missile attack (on Israel). Supply chain disruptions are likely, and general investment sentiment may also suffer,” he added.

Arun Kumar Garodia, chairman of the Engineering Export Promotion Council of India (EEPC), commented on the dire implications of the unending conflicts in the region. “We are closely monitoring the situation, hoping for no further escalation. A war could unfold in unpredictable ways and would undoubtedly disrupt trade,” Garodia warned.

Adding to the exporters’ troubles, dockworkers represented by the International Longshoremen’s Association (ILA) announced a strike on Tuesday, halting operations at 36 major US ports along the East Coast and the Gulf of Mexico. These ports handle nearly 55 per cent of container traffic entering and leaving the US, including the largest 14 ports from Maine to Texas.

 According to a report by Moody’s Analytics, countries like India, Indonesia, and South Korea, which heavily rely on these ports, are exposed to greater economic repercussions, while more diversified trading economies such as Hong Kong, Singapore, and Malaysia are likely to fare better.

Madan Sabnavis, chief economist at Bank of Baroda, remarked that the ongoing West Asian conflict further supports expectations of a pause by the reconstituted Monetary Policy Committee (MPC) of the Reserve Bank of India. He emphasised the need for the rate-setting committee to assess the potential impacts of the crisis on oil prices and the broader economy amid uncertainty regarding the conflict's duration. “Central banks must remain vigilant and incorporate this situation into their rate decisions,” he added.

India's trade with West Asia is crucial, particularly as it imports crude oil from Iraq, the United Arab Emirates (UAE), and Saudi Arabia, with the Gulf Cooperation Council (GCC) countries representing the bulk of this trade. Among these nations, the UAE stands out as India’s third-largest trade partner.

Among the other West Asian countries, the value of the trade with Iraq and Israel is on the higher side. 

The Global Trade Research Initiative (GTRI), a Delhi-based think tank, reported that the Israel-Hamas war, which began in October 2023, has caused significant disruptions throughout West Asia. Although the conflict has spread to Lebanon (and partly Syria) -- besides indirectly impacting Jordan and Iran -- key Gulf nations like Saudi Arabia and the UAE have remained uninvolved, allowing India’s trade with them to flourish.

 “Trade with war-affected countries has suffered major declines, and rising shipping costs due to disrupted routes are adding further strain. While India must stay vigilant, there may be relief if disruptions along the Red Sea are resolved,” GTRI said.

In the first seven months of 2024 (January-July), exports to Israel, Jordan, and Lebanon witnessed considerable contractions. Exports to Israel plummeted by 63.3 per cent to $1.3 billion, significantly affecting items such as organic chemicals, petroleum products, and diamonds, according to commerce department data. Exports to Jordan fell by 38 per cent to $638 million, while those to Lebanon declined by nearly 7 per cent to $198 million.

(With inputs from Subrata Panda & Dhruvaksh Saha)