How will the Israeli-Hamas conflict affect the Indian economy?

The continuous conflict between Israel and the Palestinian terrorist organisation Hamas has cast a pall over the Middle East's geopolitical stability.

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This situation is problematic not only for the world economy but also for India, considering its reliance on crude oil and significant commercial links with Israel.

Domestic stock market investors are already concerned about the ongoing violence, with analysts warning that a further upsurge could harm the Indian economy as a whole.

Inflation may result from an increase in oil costs

It is widely recognized that one of the immediate impacts of this conflict is a rise in oil prices. This has a significant impact on India, which is the world's third-largest crude oil importer. When oil prices rise, it frequently translates to higher prices for everything, which is bad news for a country that relies largely on oil imports. It has the potential to cause inflation and hinder economic progress.

Brent crude increased 3.44% to $87.49 per barrel, while West Texas Intermediate crude in the United States rose 3.85% to $85.98 per barrel.

However, the situation is unlikely to represent a significant immediate danger to oil production unless it spreads to other nations in the region, potentially escalating into a more severe proxy conflict between the US and Iran.

How it will impact trade between two nations?

India's exports to Israel amount for 1.8% of total merchandise exports, with petroleum products leading the way. India sells refined petroleum products to Israel for between $5.5 and $6 billion. India's overall exports to Israel in FY23 were $8.4 billion.

India, on the other hand, imports from Israel equipment, pearls, diamonds, and other valuable and semi-precious stones. India's imports from Israel totaled $2.3 billion in FY23.

The crisis in West Asia had no direct impact on India's trade with Israel. Analysts warn that if the disagreement escalates, it might cause supply-side issues.

Because of increasing geopolitical tensions, the Indian rupee has already depreciated versus the US dollar. Experts fear that if the crisis escalates further, the Indian rupee will fall much worse.

If the battle grows, India must tread carefully because it is the core of the India-Middle East-Europe economic corridor.

Impact on Gold Prices

Because of the growing war, gold prices have risen. During times of geopolitical turmoil, the precious metal is seen as a safe-haven asset. Since the commencement of the battle, the price of gold has climbed by more than 2%. Experts believe that if the war develops further, gold prices will soar much further.

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