The surprise attack by Hamas on Israel, which has now turned into a war and can become a prolonged conflict, has raised concerns over how it will affect the global economy that is already under stress from the war in Ukraine.
For India, there are wider implications as it raises questions not only about India-Israeli economic cooperation and partnership but also about the welfare and safety of almost 9 million Indians in West Asia.
There are also concerns over how the conflict could affect the wider region, which is a key source of India’s oil and gas, and impact their prices. Experts said rising oil prices could force an increase in the price of gold, which is seen as a more attractive investment hedge.
There are already signs of a hike in oil prices and if it goes up further in the coming days, it could spur inflation in India and elsewhere.
New Delhi’s primary focus for now is the safety of 18,000 Indians currently living and working in Israel. However, no untoward incident linked to their safety has so far been reported.
Israel is one of India’s most reliable strategic partners. In past crises, Israel has stood by India and tried to help it.
Prime Minister Narendra Modi’s prompt response in condemning the terrorist act of Hamas and reaffirming India’s commitment to stand by Israel in its hour of crisis indicates how important the country has become for India in recent years. But this also raised an important question about India’s stand in support of the Palestinian demand for a homeland.
Though there is unlikely to be any dilution on India’s tough stand against terrorism in West Asia, a more nuanced stand is likely to emerge from South Block as the dust begins to settle. However, for the moment the focus of New Delhi is on how the situation is panning out in a region that is closely linked to India’s growth and development.
Economic, defence ties
Trade between India and Israel, excluding defence, stood at $10.1 billion in 2023, according to the ministry of External Affairs. Israel is a major arms supplier of India and defence cooperation between the two sides has grown steadily over the years.
India has procured a wide array of Israeli weapons since normal diplomatic relations were established in 1992. They include Phalcon AWACS (airborne warning and control systems) and Heron, Searcher II and Harop drones to Barak anti-missile defence systems and Spyder quick-reaction anti-aircraft missile systems. The two countries also have a robust intelligence-sharing partnership.
Though there are concerns over how the conflict could affect the wider region, there is little chance of it affecting oil supply in the Gulf countries.
In past crises, Gulf countries weaponised oil and regulated its supply but never stopped production and disrupted supplies. However, the possibility of a steep hike in oil prices remains a worry for India and the international community.
The proposed Middle East Europe Economic Corridor – a multi-billion infrastructure project announced during the G20 summit in New Delhi in September to link India with the Middle East and Europe – could now be put on hold indefinitely.
It also remains to be seen how the I2U2 Initiative with India, Israel, the US and the United Arab Emirates progresses in the near future. The I2U2 held its business forum meeting in February in Abu Dhabi. But whether the initiative now turns to more of strategic cooperation remains to be seen.
Ties with Saudi Arabia
However, the international focus is likely to be on how US President Joe Biden’s proposed mediation to bring about a rapprochement in Saudi Arabia-Israel relations works out. As the leader of the Sunni Muslim world and the custodian of the two Holy Mosques in Mecca and Medina, Saudi Arabia has not yet recognised Israel.
In recent weeks, Saudi Crown Prince Mohammed Bin Salman, the de facto ruler of the kingdom, has shown serious interest in Biden’s initiative. However, observers said this time Hamas has tried to highlight the danger posed by Tel Aviv to the Al Aqsa Mosque in Jerusalem, the third holiest site in Islam, with its attack on Israel in a bid to get support from the wider Islamic world.
The attack may also be an attempt to stymie the initiative to normalise Saudi-Israeli relations and deter other Arab countries from following suit, which in turn could lead to the dilution of their support to the Palestinian struggle.
It would be too early to predict how the Arab countries and the wider international community react to the conflict between Israel and Palestine.
But a normalisation process of the wider Muslim world with Israel is likely to be put on hold for a while.
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