Israel-Hamas War: How It Will Impact Indian Businesses and Economy India is the world's third-largest importer of crude oil
By S Shanthi
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The global economy, which is already burdened with inflation, is now heading into another uncertainty. The surprise attack of Hamas on Israel, followed by the declaration of war by the latter, has led to geopolitical tensions in the Middle East, home to almost one-third of the global oil supply.
How concerning is this for the Indian businesses and economy? Given our dependency on crude oil import, strong trade ties with Israel and many Indian companies, such as Tata Consultancy Services, Infosys, Wipro, Adani Ports, Larsen & Toubro, State Bank of India, Bharat Forge and Sun Pharma having business operations in Israel.
Trade complications
Over the years, Israel has become a significant trade partner for India. In 2022-23, India's exports of petroleum products to Israel jumped 3.5 times to $5.5 billion, against $1.6 billion in the previous year. This led to 77% increase in exports compared to the previous year, and the total trade between the two countries by 37%. Major exports from India to Israel include precious stones and metals, chemical products and textiles and major exports from Israel to India include chemical and mineral/fertilizer products, machinery and electrical equipment, petroleum oils, defense and machinery.
If the war escalates, it can create supply-side disruption leading to major repercussions on India's trade with Israel. Businesses heavily dependent on cross-border trade with Israel can be hugely impacted.
Impact on the tech sector
The war could also have an impact on the tech sector, both on startups and legacy companies. Companies such as Sun Pharma, TCS, Wipro, Adani, and Infosys have operations in Israel and it needs to be seen how they will be impacted.
The CEO and co-founder of SaaS giant Zoho spoke about how until the Middle East crisis is resolved, nobody can be sure of what lies ahead for the tech sector. He was talking at Zoholics India, the company's annual user conference, in Bengaluru. He also said that the current developments in the Middle East, in addition to the Ukraine war and other uncertainties make business projections very complicated. He said that the Israel-Hamas war can create huge uncertainties and these are the things that could turn into something much worse.
Last week, Vembu also said that the company saw a slowdown in growth in September across countries and products. "We saw a fairly pronounced slowdown in growth in September across countries and across products. Given the geographically and product-wise diversified nature of our revenue streams, I suspect the global economy is taking a turn for the worse," he said on X.
Such global events almost always have ripple effects across all sectors. "The instability in the region has always had the potential to influence oil prices, creating uncertainties in the market. Such volatility not only affects energy and trade but indirectly impacts consumer behaviours and investment strategies. In Fintech, the sector we operate in, we need to stay agile, adapting to these shifts, and ensuring we're equipped to guide our clients through any economic waves. Our hope, above all, is for peace and stability in the region, recognizing the profound human implications beyond the economic ones," said Rohit Arora, CEO and co-founder, Biz2Credit and Biz2X.
Increase in crude oil prices
Experts say that even though there is no immediate threat to the supply of crude oil, if the war spreads to other countries in the region, it can have a negative impact on India, considering it's the world's third-largest importer of crude oil.
If Iran gets involved, it can affect the sea routes and endanger the passage of vessels through the Strait of Hormuz. Iran has reportedly threatened to close the same for some years now. But for now, the immediate impact could be a surge in oil prices, which was evident on Monday. Further, the rise in crude prices can affect the profit margins of businesses that use oil as input.
Inflation
If the oil prices continue to rise, the cost of production of various products could increase. This will further worsen the inflation. With the United States, India, China and India being major importers of oil, it can affect the industries there, leading to global inflation. Modeling by the organization, whose mandate includes global economic surveillance, shows that a 10 per cent increase in oil prices leads to inflation being 0.4 percentage points higher a year later, Gita Gopinath, Deputy Managing Director of the International Monetary Fund told Bloomberg TV.
