India’s exports decline amid escalating West Asia conflict

According to the trade policy think-tank Global Trade Research Initiative, India’s trade with countries directly involved in the conflict in West Asia has suffered sharp declines. During the January-July period, India’s exports to Israel plummeted by 63.5%, while Jordan saw a 38.5% decline due to spillover effects, and Lebanon experienced a 6.8% drop. The escalating conflict in West Asia is likely to drive up already high logistics costs and negatively impact trade in sectors such as oil and electronics.

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Image Source: Freepik

India’s trade with countries directly involved in the West Asia conflict has seen sharp declines, as revealed by the Global Trade Research Initiative (GTRI).

The exports to Israel dropped by 63.5%, Jordan by 38.5%, and Lebanon by 6.8% during the January-July 2024 period, largely due to the geopolitical tensions. However, key regional players like Saudi Arabia, the UAE, Kuwait, and Qatar have remained neutral, allowing India’s trade with these Gulf Cooperation Council (GCC) nations to grow by 17.8% during the same period.

The intensifying conflict in West Asia is expected to increase already high logistics costs and negatively affect trade in key sectors such as oil, electronics, and agriculture, according to exporters. They also anticipate a rise in insurance costs for exports to the countries directly involved in the conflict, which could further strain the working capital of Indian exporters.

Federation of Indian Export Organisations (FIEO) DG, Ajay Sahai noted, “Disruptions could lead to higher shipping costs and delays. Many global supply chains depend on the stability of the Middle East. Conflict could disrupt transportation and logistics, affecting industries ranging from electronics to agriculture.”

FIEO cautioned that the Iran-Israel conflict could have a major impact on global trade and the economy. Rising tensions may destabilize the Middle East and jeopardize crucial trade routes like the Strait of Hormuz, which is essential for transporting a large share of the world’s oil supply.

Iran is a key player in the oil market. Any escalation in conflict could disrupt oil supplies, leading to higher prices, which would impact global economies, especially those reliant on oil imports. Oil prices have already moved up by US $4 per barrel,” Mr. Ajay Sahai said.

Despite the broader regional challenges, India’s exports to Iran rose by 15.2%, as Iran is outside the direct conflict. However, disruptions in major shipping routes, particularly the Suez Canal and the Red Sea, have led to longer journeys via the Horn of Africa, increasing shipping costs by 15-20%. These rising costs have particularly impacted Indian exporters of low-margin goods such as textiles, garments, and low-end engineering products.

Meanwhile, India’s overall exports to the European Union rose by 6.8%, but several sectors, including machinery, steel, gems, and jewellery, faced declines. Crude oil and petroleum imports also fell by 32.38% in August 2024, largely due to reduced demand from Indian refineries and fewer orders from Europe. As freight costs continue to rise, Indian industries that rely on high-volume, low-value exports face significant challenges in maintaining profitability.

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