India’s Trade and Diaspora at Risk Amid Prolonged Gaza War

The Gaza War of October 2023, escalating into Lebanon and the Persian Gulf, involves groups like Hezbollah and the IRGC, raising concerns for India over trade disruptions and diaspora safety in the Middle East.

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• The ceasefire agreement between Hezbollah and Israel in Lebanon, brokered by external parties, has faced violations from both sides.
• If the ceasefire collapses, the conflict could potentially escalate further. 
• Additionally, hardliners in Iran have expressed intentions to retaliate against Israel, increasing the risk of a broader regional conflict.

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Impact of War On India

Threats to Trade and Energy Supplies

1. Bilateral Trade with the Middle East
   • The Gulf Cooperation Council (GCC) countries form a significant part of India’s trading partners, with over $150 billion in bilateral trade annually. 
   • The UAE and Saudi Arabia are the third and fifth largest trading partners of India. 
   • Around nine MENA (Middle East and North Africa) countries were among the top 50 economic partners of India in 2023-24. 
   • Conventionally, Iran, Syria and Libya too have been among the major trading partners of India but have slipped down over the past decade due to the sanctions on Iran and civil wars in the latter two.
   • A potential escalation in the conflict could disrupt trade flows and halt economic activity, particularly in the MENA region.
2. Energy Dependency
   • Although diversification efforts considerably reduced India’s dependence on the Middle East for oil and gas imports over the years, the region remains a critical energy supplier for India.
   • The reliance on the region for hydrocarbons remains as high as 55-60 per cent as of 2023-24.
   • Saudi Arabia, UAE, and Iraq are among the top five suppliers. (Russia is at the top, and the United States is in fifth place)
   • The ongoing conflict threatens to disrupt these vital energy supplies, which could impact India’s energy security and economic growth.
3. Regional Connectivity 
   • Before the 2023 Abraham Accords, relations had begun to normalize between Iran and the UAE, as well as between Israel and Saudi Arabia. 
   • This regional integration was driving progress, particularly with initiatives like the India-Middle East Corridor (IMEC), which held promise for benefiting all involved.
   • However, the ongoing instability and escalation in the region now threaten to derail these advancements.

Impact on Indian Expatriates

1. Large Indian Diaspora in the Gulf

• The GCC countries host nearly 9 million Indian expatriates out of nearly 18.7 million total Indian expatriates, with the UAE being home to over 3.5 million, making this region a significant source of remittances.
• In 2023, the Gulf region contributed around 30% of India’s $120 billion remittances, with only the UAE alone contributing a total of 18%, a critical source of foreign exchange.

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2. Security Concerns and Potential Evacuation

• The safety of Indian expatriates in the region is of paramount concern. 
• Historically, India has conducted large-scale evacuations during crises, such as the 1991 Kuwait evacuation , Arab Spring, COVID 19( Vande Bharat Mission). 
• If the conflict expands, India must prepare for possible evacuations and the safeguarding of its citizens.

3. Potential Remittance Loss

• A prolonged conflict and disruption in the Gulf region would lead to significant job losses and an influx of expatriates returning to India, thus affecting remittance inflow, which constitutes over 3% of India’s GDP.

Impact on Investment and Defence Cooperation

Declining Investment

• • The UAE, Saudi Arabia, and Oman are significant sources of FDIs for India. 
  • Many Indian companies have also expanded their business and investments in these regional markets.
  • However, escalating regional tensions could lead to a slowdown in Foreign Direct Investment (FDI) and portfolio investments, further affecting economic growth.
• Defense Cooperation
• • Israel remains one of India’s largest defence trade partners. 
  • Additionally, discussions with GCC nations like the UAE and Saudi Arabia have opened avenues for joint manufacturing and other defence collaborations.
  • Instability in the region could impact the ongoing defense collaborations and future opportunities.

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Conclusion

India must proactively address potential disruptions in West Asia caused by the prolonged Gaza War. By safeguarding expatriates, ensuring energy security, and protecting trade interests, India can minimize risks and strengthen its resilience. Collaborative diplomacy and contingency planning are crucial for sustaining economic stability and fostering regional peace.