India's Stakes in the Israel-Hamas Conflict
The ongoing conflict between Israel and the Palestinian
militant group Hamas has cast a cloud of uncertainty over the geopolitical
stability of the Middle East. This situation is causing concern not only on a global
scale but also in India due to its reliance on crude oil imports and strong
trade connections with Israel.
The ongoing hostilities have already rattled domestic stock
market investors, with experts warning that any further escalation could have
adverse effects on the broader Indian economy. This tension has also led to a
surge in gold prices, reaching their highest level in over a week, driven by
the Israel-Hamas conflict and dovish comments from key US Federal Reserve
Spot gold, a significant indicator in the precious metals
market, recently reached $1,865.19 per ounce, its highest point since September
29. As of 10:36 am, it remained stable at $1,860.21. Meanwhile, US gold futures
saw a 0.5 percent increase, reaching $1,874.10.
In the domestic market, trends were mixed on Tuesday. Gold
prices on the Multi Commodity Exchange (MCX) were trading higher, while silver
prices experienced a decline. Gold futures maturing on December 5, 2023,
reached Rs 57,744 per 10 grams, showing a slight increase of Rs 98 or 0.17
percent from the previous close of Rs 57,572. It's important to note that gold
prices can vary across different regions in India due to factors such as excise
duty, making charges, and state taxes.
The conflict also has exacerbated market volatility,
contributing to existing uncertainties as investors brace themselves for
corporate earnings reports and the release of crucial US inflation data later
The rise in oil prices, one of the immediate impacts of this
conflict, poses a significant challenge to India, the world's third-largest
importer of crude oil. When oil prices soar, it often leads to increased costs
across various sectors, potentially triggering inflation and slowing down
Palka Arora Chopra, Director of Master Capital Services Ltd,
pointed out, "Increasing geopolitical risk in the Middle East could raise
oil prices, leading to a sustained reduction in oil supply, which, in turn,
could affect domestic inflation and potentially lead to elevated interest
Jayden Ong, Senior Market Analyst, APAC at Vantage, echoed
these concerns, stating that the ongoing conflict's protraction could exert
sustained upward pressure on crude oil prices and contribute to persistently
elevated inflation rates, prompting central banks in various nations to
maintain higher benchmark interest rates.
In summary, higher crude oil prices could have adverse
consequences for India, where many sectors are already grappling with rising
energy costs. Any further increase in crude oil prices could exacerbate
inflation, which, though on a downward trend, still remains significantly above
the Reserve Bank of India's upper limit of 6 percent.
As crude oil prices surge, the global economy faces the
renewed threat of high inflation, affecting major oil-importing economies such
as the United States, India, and China. Rising oil prices lead to increased
production costs for various industries and higher energy expenses for
businesses and households, which in turn drive inflation upward.
India's close economic ties with Israel add complexity to the
situation. Israel is a significant trade partner for India, ranking as the
third-largest in Asia and tenth globally. The bilateral trade between the two
nations spans various sectors, including pharmaceuticals, agriculture, water,
IT, and telecom.
Major exports from India to Israel include precious stones
and metals, chemical products, and textiles, while Israel exports pearls,
precious stones, chemical and mineral/fertilizer products, machinery and electrical
equipment, petroleum oils, defence equipment, machinery, and transport
equipment to India. Any escalation in the conflict between Israel and Hamas
could disrupt this trade relationship, impacting a wide range of industries.
In the fiscal year 2022-23, Indian merchandise exports to
Israel amounted to $7.89 billion, with Israeli exports to India reaching $2.13
billion, resulting in a total trade value of over $10 billion. India also has
substantial investments in Israel, with cumulative overseas direct investment
from India from April 2000 to May 2023 totalling $383 million.
Indian companies such as TCS, State Bank of India, Jain
Irrigation, Sun Pharma, Infosys, Tech Mahindra, Adani, and Wipro are among the
major players operating in or making acquisitions and investments in Israel. In
essence, the Israel-Hamas conflict is not merely a regional issue; its further
escalation could have far-reaching consequences for countries around the world,