Opinion
Israel’s latest Hamas assassination could have serious repercussions for India's foreign policy and economy
Summary
- Israel’s assassination of Hamas leader Ismail Haniyeh in Tehran has further destabilized the already complex geopolitical landscape, potentially creating new challenges for India. As Israel intensifies its offensive, India faces a complex diplomatic and economic balancing act.
Israel's recent assassination of Hamas leader Ismail Haniyeh in Tehran, following the killing of Mohammed Deif, the head of Hamas' military wing, in an Israeli airstrike in Gaza last month, threatens to further escalate a conflict that has already lasted ten months. The repercussions on India could be significant, impacting its international relations and economic stability. The situation demands skilled diplomatic manoeuvring and vigilant macroeconomic management, as pressures on India's trade balance and currency could intensify
The conflict, which erupted following a Hamas raid on October 7, 2023—allegedly masterminded by Mohammed Deif—has seen Israel devastate Gaza, resulting in the deaths of tens of thousands of civilians, including women and children. Israel has also targeted Iran, Syria, and Lebanon, executing several high-profile assassinations.
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With the death of Haniyeh, a crucial negotiator for a ceasefire, any de-escalation seems unlikely. Geopolitical analysts warn that the situation could escalate into a global conflict if allies on both sides become involved. While Israel is widely believed to possess nuclear capabilities, Iran has long been suspected of developing a nuclear arsenal.
Washington has materially supported Israel with munitions supplies. When Iran launched a missile attack on Israel on 13 April 2024, the US, the UK, France, and Jordan had responded by deploying their air forces to intercept the missiles. Any Iranian retaliation for the assassination could potentially draw more nations into the conflict.
Meanwhile, protests against Prime Minister Benjamin Netanyahu have erupted within Israel and globally. The International Court of Justice has issued an arrest warrant for him on alleged war crimes charges. The upcoming US elections could also be affected, given America's substantial Jewish population and the dual citizenship many hold with Israel.
Implications for India
Amid this turmoil, India finds itself in a delicate position. While it has long supported the concept of a Palestinian state, the assault on Gaza casts doubt on the viability of such a state. India also maintains good relations with Iran and other Muslim-majority nations in West Asia, home to over 9 million Indian expatriates whose safety could be jeopardized by further conflict.
At the same time, India and Israel have a close military alliance and trade partnership, collaborating on various military R&D projects. Israel has been a crucial partner for India, providing munitions and intelligence during its conflicts with Pakistan. Therefore, it becomes imperative for the Indian government to tread carefully in its diplomatic engagements.
The potential for supply disruptions in global energy markets is another significant concern for India. A major chunk of the world's crude oil and natural gas is produced in West Asia, with key shipping routes passing through the Suez Canal and the Persian Gulf. India relies on imports for over 85% of its crude oil and more than 50% of its gas requirements, with the majority coming from the region. Additionally, Russia supplies approximately 35% of India's crude oil demand.
Yemen's Houthi rebels have been attacking maritime traffic in the Red Sea, complicating the use of the Suez Canal for trade with Europe. The alternative route around Africa adds considerable distance and cost. The Straits of Hormuz, another critical passage for gas and crude oil, could be blockaded by Iran, affecting around 15% of global crude and 20% of global gas supplies. This includes LNG exports from Qatar and the UAE and crude oil from Iraq, Saudi Arabia, and Kuwait. A blockade or conflict in the Straits would make sourcing alternative supplies and routes for LNG and crude challenging.
The assassination on Wednesday has already led to a $3 increase in Brent crude prices, which may be a temporary spike. However, sustained higher energy prices would negatively impact Indian refiners, marketers like Hindustan Petroleum Corp. Ltd, Bharat Petroleum Corp. Ltd, Reliance Industries Ltd, and Indian Oil Corp. Ltd, as raw material costs would rise. Each ₹1 per litre change in gross marketing margin affects the Ebitda per litre of oil marketing per companies by over 20%.
Higher LNG prices or supply shortages would also hurt suppliers like GAIL, Petronet LNG, and city gas distribution companies like Gujarat Gas, Indrapratha Gas, and Mahanagar Gas.
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Additionally, rising energy prices could stoke inflation, putting further pressure on the rupee due to the strain on India's trade balance. The Indian crude basket averaged around $85 per barrel from April to June 2024, with the Budget projecting an average price of $83-88 per barrel for FY25. If crude prices surge beyond this range, the fiscal estimates could become inaccurate. Managing these complexities and mitigating their economic impact will be a significant challenge for the Indian government, even if the situation does not escalate into a broader conflict.
