In the wake of cataclysmic events, like the recent Hamas attack and the devastating response from Israel. The world witnesses profound political shocks and strategic shifts that no one can predict at the time. The rocket attacks, hostage takings, and mass killings and air strikes occurred against the backdrop of an already tumultuous global order. The post-Cold War era had been upended by Russia’s invasion of Ukraine and China’s ascent as a superpower. The conflict between Hamas and Israel, while may not directly impact India, but the involvement of multiple actors can potentially destabilize security and stability in the West Asian region, hence It is important to understand the Middle Eastern geopolitical landscape in brief to delve into its impact on the global and Indian economy. While the Islamic world supports the cause of Palestine it has its own internal dynamics which is fairly complex. Saudi (primarily Sunni) and Iran (Shia) are archrivals and have long been battling for supremacy in the Middle East. Jordan and Egypt have established peace agreements with Israel, Jordan distanced itself from the Hamas movement a long time ago, when Amman expelled Hamas’s political representatives in the kingdom in 1999 and sent them to Qatar.Lebanon, with support from Iran, continue to pose a security challenge to Israel through the activities of group Hezbollah in the north. Saudi Arabia has adopted a diplomatic stance focused on ’restoring peace’ in the region while expressing solidarity with the Palestinians. Simultaneously, Saudi Arabia maintains strong relations with the United States and has been working towards normalizing relations with Israel through a peace agreement brokered by the U.S., as part of its efforts to counter China’s influence in the region. Notably, Israel faced an attack shortly after the initial framework of the Israel-Saudi agreement was announced by the U.S. While the deal would have been mutually beneficial for Saudi Arabia, the U.S., and Israel, it has clearly raised tensions with Iran, which supports Hamas. Currently, it appears that this deal is on hold, at least in the short term. Such an agreement has the potential to significantly alter the geopolitical dynamics of the Middle East, potentially placing Saudi Arabia at the forefront of the region.
Over the past 10 years the global economy has grown by over 35%. Israel’s share of Global GDP in 2022 was 0.3% according to the world economic Report, 0.3% in global exports and is also not a major oil producer, the ME region together accounts for 30% of global oil production and 5% of global GDP. Saudi is the largest oil producer in the region accounting for 13% of global oil production. Iran on the other hand accounts for 4% share. Iran plays a critical role here not only because of the quantum of oil production but more importantly because of supply of oil through Strait of Hormuz, which is a critical shipping artery which Tehran controls and roughly 90 percent of Iran’s oil exports pass through the Strait of Hormuz each year. This strategic waterway is the most important passage for oil trade from the Gulf region to the rest of the world. Over 85% of Gulf oil and 20 to 30% of the world’s total oil consumption flows from here. Any disruption to this route by Tehran can have a huge impact on supply and prices of oil. Moreover, any escalation in US- Iran tensions and tightening of US’ sanctions on Iran which it had relaxed in the past will also impact the flow of oil. The Immediate economic repercussions of the conflict on the global stage would primarily stem from its influence on worldwide oil prices and the subsequent implications for inflation and economic growth. It’s worth noting that the ongoing trend of rising geopolitical instability has posed a significant obstacle to the already fragile economic recovery on a global scale. According to the IMF’s most recent World Economic Outlook, as of October, it anticipates a slowdown in global economic growth, projecting figures of 3.0% for 2023 and 2.9% for 2024, down from the 3.5% year-on-year growth witnessed in 2022, without taking the current conflict into account. However, if the conflict remains confined to Israel and Gaza, its impact on oil prices is likely to be limited. Nonetheless, there exists a substantial risk should the conflict extend to encompass other regions. Consequently, the scale and duration of the conflict, as well as the roles played by influential entities such as Iran and Saudi Arabia, will be pivotal in shaping the trajectory of global economic growth moving forward. Therefore, the attention of the world is currently fixated on this region.
“A global economic downturn may follow. Fears that Israel’s expanding military operations in Gaza could escalate into a regional conflict are clouding the global economy’s outlook. World leaders must immediately call for a humanitarian ceasefire to end the suffering and restart the process that can address the root cause”.
In the broader context of the global economy, India stands out as a beacon of hope. The country’s robust economic resilience is set to propel it to a remarkable 6.3% year-on-year growth in the fiscal year 2024, according to the IMF, making it one of the fastest-growing major economies worldwide. India’s economic performance has remained remarkably steadfast in the face of the pandemic and the Russia-Ukraine crisis, owing largely to its strong domestic economy and sound macroeconomic policies. However, it’s important to note that India is not entirely immune to the fluctuations of the global economic landscape. Despite its impressive growth, there is a projected slowdown of nearly one percentage point in GDP growth for the fiscal year 2024 compared to the previous year, and the Indian rupee and exports continue to face challenges and pressures In terms of its regional diplomacy, India has deftly managed its relationships in the Middle East. It has nurtured closer ties with Saudi Arabia and the United Arab Emirates while maintaining a delicate balance with Iran. Prime Minister Modi’s tenure has seen a significant strengthening of India’s diplomatic relations with Israel. In the realm of trade between India and Israel, bilateral trade for the fiscal year 2023 amounted to approximately $10 billion. India imported goods worth $3 billion from Israel, including items such as pearls, precious and semi-precious stones, metals, electric machinery, fertilizers, and mineral fuels. India’s exports to Israel, which totaled $7 billion, predominantly comprised mineral oils, fuels, and precious stones, diamonds, and metals. The majority of trade flows through the Eilat port, situated on the Red Sea, and so far, there have been no reports of port disruptions. While a direct conflict between Hamas and Israel may not have an immediate impact on India, the involvement of multiple actors in the war could destabilize the security and stability of the West Asian region, potentially affecting India’s energy supply. India currently sources 60% of its oil requirements from the Middle East. The uncertainty regarding trade routes and potential disruptions in the supply chain poses risks for the global economies. One of the significant concerns for India relates to the uncertainty surrounding the India Middle East Europe Economic Corridor (IMEEC). This corridor, announced during the G20 summit in Delhi, is viewed as a response to China’s Belt and Road Initiative. IMEEC holds the potential to enhance trade connectivity, establish clean energy pathways, develop digital infrastructure, and foster sustainable economic growth in the region. It consists of two multi-modal corridors: the Eastern corridor linking India to the Arabian Gulf and the Northern corridor connecting the Gulf to Europe via sea and rail routes. This initiative is expected to reduce shipping times by up to 40% and significantly lower logistics costs. Both the Middle East and the European Union are among India’s key trading partners, and trade relationships have continued to grow. From both geopolitical and economic perspectives, India stands to benefit from IMEEC. However, the ongoing war may hinder discussions regarding the economic corridor.
Conclusion: The Hamas attack and Israel’s response are taking a heavy human toll. According to the Media Office of the Gaza Government, more than 12,000 Palestinians have been killed since the start of the Israel-Hamas war. A global economic downturn may follow. Fears that Israel’s expanding military operations in Gaza could escalate into a regional conflict are clouding the global economy’s outlook. World leaders must immediately call for a humanitarian ceasefire to end the suffering and restart the process that can address the root cause.
(The author is a Research scholar working on peace initiatives in Kashmir and writes on Polity, Governance Art and Culture. The views, opinions and conclusions expressed in this article are those of the author and aren’t necessarily in accord with the views of “Kashmir Horizon”.)