Even as intense fighting is underway between Israeli soldiers and Hamas fighters in the streets of southern Israel, its impact of on India’s foreign trade may not be material, experts said. They, however, added that it’s important to monitor how the situation unfolds.
The worry is that a prolonged conflict could affect sentiments when the world trade is already projected to be flat, they said.
The area of the conflict is “defined” and Israel can use its ports as usual, so there would be no impact on (India’s) trade, Ajay Srivastava, co-founder of Global Trade Research Initiative, said.
“The situation may change if the conflict escalates and others join. There is a remote possibility of that,” he added.
For merchandise exports of India, the war may lead to higher insurance premiums and shipping costs. India’s ECGC may charge higher risk premiums from Indian firms exporting to Israel, Srivastava added.
In the short term, some volatility in oil prices is expected and there could be some market jitters. If the conflict draws in other countries of the region (Iran already seems involved), the impact could be as big as the oil crisis of the 1970s or closure of key trade routes like Suez Canal.
“Right now, no impact is seen in India’s trade due to the eruption of Israel-Hamas conflict in West Asia. However, if the conflict escalates, it can create supply-side problems,” Ajay Sahai, director general and CEO of Federation of Indian Export Organisations, said. Crude oil prices are already going up. If they go up further, it would also lead to the widening of current account deficit, he noted.
In 1967, the six-day Israel-Arab war led Egypt to close Suez Canal for world shipping. Suez was a major route for evacuating West Asia crude to the West. The canal was finally opened after eight years in 1975.
After yet another war between Israel and Arab countries in 1973, the oil producers jacked up the prices once again. These developments kept the world economy in crisis for much of the 1970s.
The biggest Israeli port of Haifa is more than 150 km away from Gaza and the second biggest, Ashdod, is even further up. Adani Ports and Special Economic Zone holds a 70% stake in Haifa port.
India’s merchandise trade with Israel happens mostly through Eilat port, located on the Red Sea. There has been no disruption at ports.
The immediate impact Israel would feel is in its trade with Palestinian territories, but with India and the wider world, it would be business as usual.
“I do not see much impact on trade immediately unless the conflict aggravates further. However, oil prices may go up as the conflict is located in the major oil producing region. One has to wait and see how it plays out,” said Prof Nagesh Kumar, director, ISID.
In the past two financial years, India’s exports to Israel have grown more than 75% y-o-y every year and now account for 1.8% of India’s total merchandise exports. This has been driven by petroleum products as India became a processor of cheaper Russian crude when other countries kept away.
In 2022-23, India’s exports to Israel increased 76.2% on year to $8.4 billion. In 2021-22, the exports were $4.8 billion.
During FY23, exports of petroleum products from India to Israel zoomed to $5.5 billion from $1.6 billion. In FY21, petroleum product exports from India to Israel were $619 million. After the Netherlands, Israel is now the second-biggest market for export of automotive fuels.
The conflict would increase the demand for fuel so adverse circumstances could bring more business to Indian refineries. Other big items of export to Israel are precious and semi-precious stones, pearls, imitation jewellery, among others.
India’s imports from Israel are machinery and equipment, and pearls, diamonds and other precious and semi-precious stones. India’s imports from Israel in FY23 were $2.3 billion, down 24.4% on year.