Delhi, 14 June (H.S.): The recent military confrontation between Iran and Israel has introduced new difficulties for India's economy, which is already grappling with trade disruptions from US tariffs. Israel's air strikes on Iranian nuclear sites resulted in retaliatory missile and drone attacks from Tehran. These events led to significant declines in global stock markets, including India, as investors moved away from risky assets. India faces heightened concerns due to its substantial economic ties with the Middle East region. The Strait of Hormuz, a crucial maritime passage for oil trade, remains a focal point, as Iran has previously threatened to disrupt shipping routes. Consequently, crude oil prices surged, with Brent crude rising by 7.2% to $74.34 per barrel, putting pressure on India's import costs, given that the country sources nearly 90% of its crude oil through this strait. Additionally, domestic gold prices surpassed Rs 1 lakh per 10 grams, driven by a demand for safe-haven assets and a weakening dollar, further amplifying India's trade balance challenges.
Oil prices have surged as Israel's confrontations with Iran heighten fears of a broader conflict, adding to India's economic challenges. The rupee has declined to an 8-week low, ending 49 paise weaker at 86.09 per dollar, influenced by rising import costs and imported inflation. The Reserve Bank of India’s interventions have limited further declines.
India's trade with the Middle East is significant, having exported nearly $6 billion in goods in March. However, rising shipping costs due to disruptions in key transit routes, like the Red Sea, caused by Houthi rebel attacks, have negatively impacted exports. The ongoing conflict exacerbates concerns over trade routes crucial for connecting Europe and North Africa, undermining the India-Middle East-Europe Corridor envisioned in 2023.
Additionally, U.S. tariff policies have burdened India's economy as it aims for a $1 trillion export target. Indian officials are actively pursuing a trade deal with the U.S. ahead of a deadline for reciprocal tariffs, amidst a favorable trade surplus with America.
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Hindusthan Samachar / Jun Sarkar
