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The Hindu
a day ago
- Business
- The Hindu
Israel-Iran conflict to impact oil supply to India, increase export costs by 40-50%
Israel's attack on Iran and heightened tensions in the area pose significant risks to India in terms of curtailed supplies of oil and a 40-50% increase in the export costs, according to analysts and trade experts. Early on Friday (June 13, 2025), Israel said it had struck 'dozens' of nuclear and military targets in Iran, following which Iran reportedly retaliated with drone strikes of its own. Following these developments, global oil prices jumped about 8% in a single day, sparking fears that a sustained escalation could push inflation in India up, since it imports about 80% of its oil requirement. Problems for India 'The ongoing Iran-Israel conflict is likely to pose risks to oil supply even though India does not directly import large volumes of oil from Iran,' Amit Kumar, Partner and Energy & Renewables Industry Leader at Grant Thornton Bharat told The Hindu. 'India imports more than 80% of its crude oil needs. Hence, even if direct imports from Iran are minimal, global price spikes due to conflict will raise crude oil import costs.' Further, Mr. Kumar said that around 20% of global oil passes through the Strait of Hormuz, which is located between Iran to the north and the Arabian Peninsula to the south. 'Any disruption around the Strait of Hormuz may affect oil shipments coming from Iraq, Saudi Arabia, and the UAE who are key suppliers for India,' he added. Disruptions in this area could also significantly hurt India's exports in terms of time as well as costs, according to Pankaj Chadha, Chairman of the Engineering Exports Promotion Council of India. 'The escalation of the conflict in the Middle East once again closes access to the Suez Canal and the Red Sea, which will have a huge cost and time escalation for Indian exports by ship,' Mr. Chadda told The Hindu. 'Going around the Cape of Good Hope will add about 15-20 days per ship and $500-1,000 per container, which effectively works out to a 40-50% increase in costs,' he added. Impact on prices While oil prices immediately surged following Israel's attack, they are expected to settle back down, according to Norbert Rücker, Head of Economics and Next Generation Research at Julius Baer. 'Our best guess is that this latest conflict eruption follows the usual pattern, with prices rising temporarily before returning to previous levels,' Mr. Rücker said. 'The oil market is very resilient today and supplies are unlikely at risk. Storage is ample, spare capacity plentiful, and exports grow outside of the Middle East.' The price of gold, too, surged to above Rs 1 lakh per 10 grams following the attack as investors flocked to 'safe haven' assets. 'In times of conflict and uncertainty, gold remains the go-to hedge for both institutional and retail investors,' Amit Jain, co-founder of Ashika Global Family Office Services said. 'What we're witnessing isn't just a knee-jerk reaction. It's a continuation of a broader structural uptrend driven by central bank accumulation, weakening fiat confidence, and long-term inflationary concerns.'
The Hindu
08-05-2025
- Business
- The Hindu
Caution and optimism: on India's FTA with the United Kingdom
The Free Trade Agreement (FTA) between India and the United Kingdom marks a strong step towards securing India's bilateral ties in an increasingly fragmented global trade environment. The key highlight for India is that 99% of its exports will attract no duties. Apart from being hailed by business leaders, industry associations representing sectors such as engineering goods, apparel, and gems and jewellery — each among the top Indian exports to the U.K. — have expressed strong optimism for future trade growth. Engineering exports, for example, are expected to nearly double to $7.55 billion by 2029-30, according to the Engineering Exports Promotion Council of India. Overall bilateral trade is expected to double to $120 billion by 2030. The other major win is that Indian workers temporarily working in the U.K. and their employers will be exempt from making social security contributions for three years. This is likely to ease the hiring of Indian workers in the U.K. The FTA also eases the movement of professionals and investors, which should go some way in reviving India's flagging foreign direct investment levels. On the flip side, India has agreed to cut its tariffs on 90% of the tariff lines imported from the U.K., with 85% of these to be reduced to zero tariff within a decade. While the reduction in automotive tariffs is unlikely to meaningfully change the price-conscious behaviour of Indians, the slashing of import duties on whiskey and gin will increase competition in India and perhaps slow the ongoing premiumisation trend. Although the Modi government has been quick to criticise the FTAs signed by the UPA for putting India at a disadvantage, some of its own FTAs have faced the same issue. The India-UAE CEPA (2022), for example, has seen India's trade balance worsen over the years. The FTA with Australia, too, has not resulted in gains for Indian exports. Indian farmer organisations — opposed to the U.K. FTA since talks began — are up in arms over the reduced tariffs on lamb and salmon and other edible products. Here, too, the government must act to ensure that India's farmers, already in a low-income, low-margin situation, are not elbowed out. Then, there is the fact that trade experts agree that the India-U.K. FTA will be the template for future agreements with the EU and the U.S. India must be careful here. While the U.K. is a relatively small trading partner, the EU and the U.S. deals — when they happen — will have a more significant impact. India has already cut import duties on several food and auto products in line with U.S. demands. With a less than 2% contribution to global exports, Indian manufacturing needs to be helped, not undermined.
