Rising tensions between Israel and Iran have triggered a sharp rise in global crude oil prices. This situation may raise inflation in India, disrupt oil supply routes, and increase export costs significantly.
What is the Israel Iran conflict
- A military strike by Israel on Iran has heightened geopolitical tensions in West Asia.
- Global crude prices surged by nearly 8% in one day due to fears of supply chain disruptions.
India’s Oil Dependency
- India depends on imports for about 80% of its crude oil needs.
- Though direct oil imports from Iran are currently limited, any global price increase impacts India’s import bill.
- Crude prices rising globally means higher fuel costs domestically, contributing to inflation.
Strait of Hormuz:
- About 20% of the world’s oil passes through the Strait of Hormuz, between Iran and the Arabian Peninsula.
- Tensions or blockades in this route may disrupt oil flow from Iraq, Saudi Arabia, and UAE—India’s key suppliers.
Impact on Indian Exports
- If the Suez Canal or Red Sea route is blocked, ships would need to detour via the Cape of Good Hope.
- This detour adds 15–20 extra days of shipping time per vessel.
- Export shipping costs could rise by 40–50%, especially in sectors like engineering goods.
Economic Impact on India
- Inflation risk: Higher oil import costs may raise prices across sectors in India.
- Gold price surge: Investors are turning to gold amid global uncertainty; prices have exceeded ₹1 lakh per 10g.
- Investor behaviour: Gold is seen as a safe asset during conflicts, leading to increased demand and price jumps.
STRAIT OF HORMUZ
- Strategic Location: The Strait of Hormuz is a narrow waterway between Iran and Oman, connecting the Persian Gulf to the Arabian Sea. It is one of the world’s most important chokepoints for global oil trade.
- Global Oil Supply: About one-third of the world’s seaborne oil passes through this strait. Any disruption here affects global energy prices and can create economic instability worldwide.
- Geopolitical Tensions: The strait often sees tensions between Iran, the U.S., and Gulf countries. Iran has threatened to block the strait during conflicts, which makes it a key area in international security and maritime strategy.
Conclusion
The Israel-Iran conflict may indirectly affect India’s economy through oil price volatility, disrupted trade routes, and rising inflation. Strategic planning and energy diversification are essential to reduce long-term risks.
PRELIMS PRACTICE QUESTION
The Strait of Hormuz, a strategically vital waterway, lies between which of the following countries?
- Iraq and Iran
- Saudi Arabia and Qatar
- Iran and Oman
- UAE and Bahrain
Answer: C
Explanation:
- The Strait of Hormuz is a narrow passage that connects the Persian Gulf with the Gulf of Oman and the Arabian Sea.
- It separates Iran (to the north) and Oman (specifically its exclave Musandam, to the south).
- It is one of the world’s most important oil chokepoints.
