Escalation of Israel-Hamas war could hit corridor plans
Summary
While most countries have condemned the Hamas attack, some like Iran have welcomed itNEW DELHI : Israel’s declaration of war on Hamas in response to attacks on its territory may cloud New Delhi’s ambitious plans to build an India-Middle East-Europe economic corridor (IMEEC), Indian exporters and trade experts said.
The plan to develop shipping and railway links between the three regions was announced as part of the Delhi declaration of the G20 summit in India.
Fears are growing in the Indian capital that the war could drive insurance premiums and shipping costs higher as was seen on the trade routes affected by the Russia-Ukraine war last year. This assumes further significance as Israel is India’s 11th largest trade partner with bilateral trade amounting to $12 billion.
“IMEEC trade corridor is a very long- term infrastructure project. While it is still early to access the impact on the plans, if any of the (West Asian) countries joins the Hamas, then definitely the entire project will be derailed because unless every country in the region is onboard, the corridor won’t work," said Ajay Sahai, CEO of the Federation of Indian Export Organisations.
While most countries, including India, have condemned the Hamas attack, some Arab as well as non-Arab countries, notably Iran, have welcomed it. The corridor is expected to boost connectivity and infrastructure among India, the UAE, Saudi Arabia, EU, France, Italy, Germany and the US. The announcement made last month stated that linking these three regions will enable seamless flow of commerce, energy and digital communication.
Importantly, it is seen as a counter to the Chinese Belt and Road Initiative (BRI), which is crucial for Beijing’s geopolitical and economic ambitions that India aims to counter.
The plan is to create an economic corridor through Europe and the Middle East with rail links, which will then be connected to India through shipping lanes.
If the Arab world is drawn into the conflict, it will impact not only the upcoming corridor project, but also hurt India economically, said Biswajit Dhar, professor, Centre for Economic Studies and Planning at the Jawaharlal Nehru University.
“If the conflict is long-drawn and the Arabs get drawn into it, India may face some challenges. These include remittances from that region being impacted, further firming up of pressure on oil prices, and uncertainties around the proposed economic corridor connecting Europe, Middle East and India," Dhar added.
However, experts don’t expect world powers like the US and other European powers to be drawn into the conflict. Efforts to de-escalate the situation will be a top priority as the consequences of a full-blown war will weigh heavy on all countries.
“Trade may be seriously impacted if operations at the three largest ports of Israel—Haifa, Ashdod and Eilat—are disrupted. These ports handle shipments in agricultural products, chemicals, electronics, machinery, and vehicles. India’s merchandise trade with Israel happens mostly through Eilat port, located on the Red Sea. Fortunately, so far there is no report of port disruption," Global Trade Research Initiative said.
India’s merchandise exports and imports from Israel for FY2023 amounted to $8.4 billion and $2.3 billion respectively—a trade surplus of $6.1 billion. Key Indian exports to Israel are diesel ($5.5 billion) and cut and polished diamonds ($1.2 billion).
Key imports from Israel are rough diamonds ($519 million) and cut and polished diamonds ($220 million), electronics and telecom components, parts of photovoltaic cells ($411 million) and potassium chloride ($105 million).