Mains Practice Question


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Where does India stand in terms of commerce with Israel and Iran? Highlight the regional tensions that are affecting commerce.
A Simple Introduction about India's relations with Israel and Iran
India's trade with Israel has witnessed a dramatic rise in recent years. From a focus on diamonds initially, the relationship has expanded considerably. In FY 2022-23 (financial year ending March 2023), excluding defence deals, bilateral trade reached a substantial $10.77 billion. India enjoys a trade surplus of $6.13 billion with Israel.
India's trade with Iran has seen a decline in recent years, largely due to US sanctions imposed on Iran. There was a positive sign in FY 2022-23, with a 21.77% increase in trade compared to the previous year, reaching $2.33 billion. India maintains a trade surplus of about $1 billion with Iran.
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Impact of Middle East Tensions on India’s Trade and Energy Prices

  • India began diplomatic relations with Israel in 1992. Since then, commerce between the two countries has increased dramatically, from approximately $200 million in 1992 (mainly for diamonds) to $10.7 billion (excluding defense) in the fiscal year 2022-23. In contrast, Iran was India’s 59th largest trading partner, with bilateral trade.
  • According to the think tank Global Trade Research Initiative (GTRI), petrol prices in India are unlikely to rise as a result of the ongoing Middle East tensions. However, tensions in the Red Sea, a vital commercial route between Europe and Asia, may have a broader impact. This route accounts for around 12% of total world trade.
  • Since November 2023, Yemeni militants known as the Houthis have targeted certain ships sailing through this region. They claim their actions are in response to Israel’s military activity in the Gaza Strip, while Israel accuses Iran of supporting the Houthis. The latest conflict between Iran and Israel may exacerbate India’s commercial problems caused by shipping disruptions in the Red Sea. Despite these challenges, this battle is unlikely to impact Indian petrol prices significantly. The ongoing conflict has made the situation in West Asia extremely insecure, potentially delaying initiatives such as the Middle East-Europe Economic Corridor (IMEC) for an extended period.
  • The current violence is unlikely to seriously impair crude oil and gas output because major producers such as the United States, Russia, and North Sea firms are not in the conflict zone, and Saudi Arabia has not directly intervened. However, shipping disruptions in the Red Sea have forced longer trade routes via the Cape of Good Hope to Europe and North America’s east coast, potentially resulting in higher oil and petrol costs. In India, the impact on consumers may be negligible because the government can balance price rises by lowering taxes.
The ending of the answer should be on a positive note and it should have a forward-looking approach.

While geopolitical tensions in the Middle East may create challenges for India's trade and energy security, the country's diversified trade relations, coupled with its ability to adapt to changing circumstances, position it to navigate through these challenges with resilience.


Other Points to Consider 

Important places in news in Israel and Iran
Trade between India and Iran
Trade between India and Israel
Location of Israel and neighbouring countries

Previous Year Questions

1. In what ways would the ongoing U.S-Iran Nuclear Pact Controversy affect the national interest of India? How should India respond to this situation? (2018)
2. Indian diaspora has scaled new heights in the West. Describe its economic and political benefits for India. (2023)


21-May 2024