Iran and Israel may not be at war, but they are as close to war as possible. The big question is; should there be a full-fledged war, then how would it impact the Indian economy? Let us first look at how some of sectors will be impacted.
It is about oil, but a lot more
Obviously, the impact of the war will be felt on oil prices. The attacks could only intensify in the Red Sea and the situation could get worse in the Straits of Hormuz too. That will have an obvious impact on the sectors like paints, tires and other FMCG goods that still rely on crude oil as a key ingredient. Of course, OMCs like BPCL HPCL will be impacted by a fall in their marketing margins. Above all, the airlines will be also hit by higher costs and that means it has to be either a hit on profits or passing on to consumers. But, there is a lot more than oil impact.
Airline costs will not only be hit by higher ATF prices, but also by longer routes to the West to avoid war zones. Then, there are the specific cases of companies with a very strong business franchise in this region. Tea and rice exports have a big market in Iran and that is likely to be hit in a big way. Above all, it is Adani Ports that operates and runs the Haifa Port in Israel and that business is going to be impacted. Also, Sun Pharma’s subsidiary, Taro Pharma is an Israeli company and that will also see an impact. So, the war impact on India would be about oil, but it would also be a lot more than oil prices.
What about diplomacy?
The big dilemma for India would be on the diplomatic front. India still relies very heavily on the Middle East for oil. India would not be too keen to spoil its key relations with nations like Saudi Aribia, UAE, and Iraq in the region. It is not just about the oil imports but also about the long-term business relationships, the FTAs that are being signed and about the millions of Indians who work in these regions. India would not want to be seen openly supporting a war against the oil rich nations. Also, Israel has emerged as a key ally for India and India knows that Israel has the backing of the US and other Western allies. India may maintain a neutral stance, but it remains to be seen how long it would be truly feasible.
But, it could boost defence
If there could be a silent beneficiary of this ongoing conflict, it will be the Indian defence Industry. India has built defence exports by near 10-fold in the last few years and that is showing a lot of solid traction now. In-sourcing already means that Indian forces increasingly rely on domestic companies for their routine needs. The ongoing conflict will urge, India and Asian nations to spend more on defence and that would mean greater demand for defence goods. The situation may be ripe for Indian defence industry to make a big splash in the global arena. War is not a good idea, but that is one thing that benefits the defence sector.