The escalating conflict between Iran and Israel is creating a complex challenge for India, forcing it to navigate its historically strong ties with both nations while safeguarding its own strategic and economic interests. India has long maintained a delicate balancing act in its relations with Iran and Israel. While it shares deep cultural and civilizational connections with Iran, particularly through projects like the Chabahar port, its defense and technology ties with Israel have strengthened considerably in recent years.
Prime Minister Narendra Modi has expressed deep concern over the escalating hostilities, emphasizing the need for dialogue and diplomacy to restore peace. India's official stance has been one of neutrality, urging both sides to de-escalate tensions. This approach reflects India's vital stakes in the region, including energy security, trade, and connectivity projects.
The economic implications of the Iran-Israel conflict for India are significant. Any disruption to shipping lanes, port access, or financial systems in the region could severely impact India's trade flows. India relies heavily on the Strait of Hormuz for its crude oil imports, and any blockade or military escalation in this vital maritime corridor would drive up oil prices and trigger inflationary pressures at home. The Global Trade Research Initiative (GTRI) has warned that a wider regional conflict could threaten India's trade with West Asian countries, including Iraq, Jordan, Lebanon, Syria, and Yemen, where Indian exports and imports are substantial.
Specifically, India's exports to Iran, which include key items like Basmati rice, bananas, and tea, could be particularly vulnerable. Heightened shipping risks and potential blockages in payment channels due to US sanctions could dampen Iranian demand and squeeze Indian exporters, especially in the agricultural sector. The conflict also jeopardizes India's connectivity plans, particularly the Chabahar port project, which is crucial for accessing Central Asia and Afghanistan, bypassing Pakistan. The International North-South Transport Corridor (INSTC), which connects India to Russia and Central Asia via Iran, also faces delays due to security concerns.
The recent attacks have already started impacting India's exports to Iran and Israel, with some companies holding back consignments. The rise in conflict between Israel and Iran has also shaken global financial markets, with the BSE Sensex experiencing a sharp drop following news of Israeli strikes on Iranian nuclear sites.
Despite the challenges, India has refrained from picking a side, sticking to its policy of "dialogue and diplomacy." In a special gesture, Iran recently opened its airspace for India to evacuate its nationals. India was also among the first nations that Tehran called after the US bombed Iran's key nuclear facilities. This underscores the deep-rooted ties between the two nations, even as India navigates its relationship with Israel.
Looking ahead, India's ability to maintain a balanced relationship with both Iran and Israel will be crucial. This requires deft diplomacy, strengthening resilience in energy and digital infrastructure, protecting trade corridors, and engaging all sides diplomatically without compromising on long-term goals.
