Oil Shockwaves: Iran-Israel War’s Trade, Inflation Risks for India | GK & Current Affairs

Why This Conflict Matters
The Iran-Israel clash isn’t just a West Asian crisis—it’s a test case for India’s energy security, diplomacy, and macroeconomic stability. With UPSC’s focus on “international relations” (GS-II) and “resource mobilization” (GS-III), this conflict intertwines key syllabus themes:
Global politics deinstitutionalization
Impact of developed-developing nation policies on India
Trade route vulnerabilities (Red Sea/Suez Canal)

Key Triggers of Current Escalation
April 2024: Israel’s airstrike on Iran’s embassy in Damascus.
Iran’s retaliation: First direct missile attack on Israel.
Israel’s response: Bombing of Iranian gas fields & nuclear facilities.
Collateral damage: Nuclear talks cancelled, Strait of Hormuz closure threats.

India’s 4-Point Economic Risk
Oil Shock:
85% of India’s oil is imported; 25% passes through Strait of Hormuz (Iran’s potential chokehold).
Goldman Sachs warns of Iranian supply drop by 1.75 million barrels/day – spiking prices.
LNG Crisis:
Qatar (India’s top LNG supplier) exports via Hormuz. Disruptions could cripple power/industries.
Inflation Threat:
RBI’s recent 50bps rate cut (leaning on low food inflation at 2.82%) faces reversal if fuel/transport costs surge.
Market Volatility:
Sensex plunged 573 points (April 19); investors fleeing to safe havens.

Trade Route Vulnerabilities
Red Sea/Suez Canal: Handles 12% of global trade. Attacks could force rerouting via Africa’s Cape of Good Hope – adding 7,000 km and 15 days to India-Europe shipments.
Bab-el-Mandeb Strait: Critical for India-Mideast trade; Houthi attacks already disrupt $200B/year Indian exports.

India’s Diplomatic Tightrope
Balancing Act:
Strategic ties with Israel (defense, tech)
Energy/connectivity interests with Iran (Chabahar Port, IMEC corridor)
Stance: Official calls for “de-escalation” but avoids condemning Israel – reflecting West Asia policy realism.

The IMEC Wildcard
The India-Middle East-Europe Economic Corridor (announced at G20) faces delays if conflict spreads. Key benefits at risk:
Faster India-Europe trade (40% quicker than sea)
Counter to China’s Belt and Road
 

Exam Focused Q&As
Q1: How could Iran-Israel tensions affect RBI’s inflation control?
A: Rising oil prices may reverse recent food inflation gains, limiting RBI’s ability to cut rates despite slowing growth.
Q2: Why is the Strait of Hormuz critical for India?
*A: 25% of global oil (including India’s imports from Iraq/Saudi) passes through it – closure could spike prices by 30-40%.*
Q3: Explain IMEC’s strategic importance amid Red Sea disruptions.
A: It offers an alternative land route from India to Europe via UAE-Saudi-Jordan, bypassing volatile sea lanes.
Q4: What is ‘axis of resistance’ in Iran-Israel context?
A: Iran-backed groups (Hezbollah, Houthis, Hamas) opposing Israel/US influence in West Asia.
Q5: How does this conflict reflect ‘deinstitutionalisation of global politics’?
A: UN/US failed to prevent escalation; regional powers (Iran/Israel) acting unilaterally, undermining multilateral frameworks.