India is now facing a dangerous new geopolitical risk posed in part by escalating tension between the United States, Israel and Iran. This rising conflict impacts India’s energy security, strategic infrastructure projects and economic stability. There are several problems that are creating uncertainty and instability for India.
The opening of oil supply routes to the West through the Strait of Hormuz, the potential for major infrasturcture projects in Iran to be halted and the presence of millions of Indian citizens in the region creates a challenging number of strategic risks for New Delhi to deal with.
Strait of Hormuz crisis threatens India’s energy lifeline
India’s economy depends almost entirely on imported energy; nearly 85-90% of India’s crude oil supply is imported. A significant percentage of these oil supplies transit the Strait of Hormuz, creating a potential impact on India’s energy lifeline.
Approximately 40%-50% of India’s oil is transported through the congested waterway, while about 60% of liquefied natural gas (LNG) also passes through this critical sea lane as it connects the Arabian Sea with the Persian Gulf.
With the recent escalation of the conflict, tanker traffic from the Strait of Hormuz has decreased significantly as shipping companies are being hit with higher insurance prices and security issues. Any extended disruption to this region will lead to an increase in global oil prices.
The negative economic ramifications are also considerable. Each $10 increase to the price of crude oil will add $13-$14 billion to India’s annual import account, contributing to inflation and further widening the current account deficit. Furthermore, a lasting oil shock will weaken the rupee, raising transportation and overall food prices in the economy.
Strategic projects in Iran face uncertainty
In addition, conflict is threatening what will be India’s largest geopolitical infrastructure project to date, the Chabahar port development project in southeastern Iran.
India is investing significant funds developing the port to serve as a major connectivity hub between South Asia and Central Asia/Russia. This will provide a key element of the International North-South Transport Corridor (INSTC), a trade route to facilitate trade without going through Pakistan and lower the shipping costs associated with regional trade.
Before the onset of conflict in this region, cargo capacity at Chabahar was on the rise and India is looking to expand trade via this corridor within the next several years.
Airstrikes and instability in Iran have hindered construction progress at the port and its associated infrastructure and threatened to greatly impact the future of this entire project. If the fighting continues; then India’s long-term goal to connect with Central Asia via sea will be significantly impacted.
Millions of Indians caught in a conflict zone
According to estimates, there are approximately nine million Indians that live in countries around the Middle East; including the UAE, Saudi Arabia, Qatar, Kuwait, and Bahrain; many of which are home to US military installations and/or critical infrastructure used by the US military in the Middle East.
Currently, there have already been missile and drone attacks in parts of the Middle East that are disrupting airports, flight operations, and raising concerns among the expatriate community in the Middle East.
The economic impact of these attacks may also extend to remittances. The majority of money sent home by Indians working in the Gulf region supports millions of families in India and supports India’s economy. A prolonged downturn in the Gulf will significantly affect the flow of remittance money.
A delicate geopolitical balancing act
New Delhi has strategic partnerships with both the United States and Israel while also maintaining strong ties with Iran particularly in energy trading and regional connectivity.
As the conflict worsens and global powers become aligned with either side, it will become increasingly difficult for India to balance its relationships between these nations.
The outcome of the current situation in Israel and Gaza is a defining point for India’s regional strategy.
In the immediate term, a ceasefire could lead to oil prices stabilizing and keep trade routes open, however, if the conflict escalates further on either side, especially if the Strait of Hormuz is disrupted or the Gulf region becomes unstable, the repercussions for India could be catastrophic.
This conflict will therefore be more than just a distant geopolitical event; It represents a direct threat to India’s economic viability, strategic ambitions and diplomatic balance in one of the most volatile regions in the world.
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