Rumblings of War

Why is the world worried over the US-Iran face-off, and does India need to be anxious? Already there are some repercussions in the price rise of crude oil and likely impact over an already strained economy. What line of action should India and Indians take?

We are in the midst of a state of international tension. It started with the killing of Iranian General, Qasem Soleimani, and reaction by Iran against US interests in retaliation. The killing of the General was executed near Baghdad airport in Iraq, and this has led to even Iraq jumping into the fray, with it passing a resolution against the US. Iraq has asked the US to withdraw all its security personnel from its soil. The US has warned Iraq that it will face unprecedented sanctions for its misdeeds. The narratives between the US and Iran are of a disturbing nature, and the entire international community is worried about the outcome. The think-tanks world over are debating on whether the world is on the edge of war, as a war between the US and Iran if it takes place, may flare up to an uncontrolled level.

Crude price shoots up

To begin with, the global economy has already started seeing its impact. On the very first day after the killing of Gen. Soleimani, the crude price shot up by 4%. Stock markets around the world reacted adversely. Our own share market crashed, as the Sensex fell by more than 700 points. India is friendly with both the US and Iran, but the irony is that it will be amongst the biggest sufferers in the event of war. Presently, the Indian economy is already under pressure, and this international occurrence, on which we have no control, will be painful for us.

One of the biggest reasons for worry is our over-dependence on oil imports. We import over 83% of our oil consumption, as we produce only 17% of our needs. Both Iraq and Iran are our biggest suppliers and we can imagine the ground situation if there is a war-like situation in that region. The price of crude is going to spike up if there is no quick calming down of the situation. Our revenue-deficit will get widened if we are forced to buy costlier crude. The energy sector is one such sector where we cannot curtail demand by importing less crude than what is needed, as it will have a vicious cyclic impact on our economy.

‘The narratives between the US and Iran are of a disturbing nature and the entire international community is worried about the outcome. The think-tanks world over are debating on whether the world is on the edge of war, as a war between the US and Iran, if it takes place, may flare up to an uncontrolled level’

Hit by US-China trade war

In the recent past, the global economy was also hit by the occurrence of yet another incident of trade war between the US and China, the two biggest economies of the world. This problem is not yet resolved, though talks taking place between these two countries seem to be taking a positive note. India also suffered due to this US-China trade-war. One reason for the slowing down of our economy was this external occurrence. One very important parameter of any economy is its export performance and exports depend upon global demand. Our export suffered due to weak global demand caused by the uncertain global situation caused by the US-China trade war.

Thus, external occurrences like the US-Iran conflict or the US-China trade war, are having an adverse impact on the domestic economy. Why this so lies in the fact of ‘globalisation’. For globalisation, the world is flat. It is one global market and that is the essence of globalisation.

The good side of globalisation is all about efficiencies and opportunities, which an open market creates. Businessmen can communicate efficiently and effectively with their partners, suppliers and customers and manage their supplies, inventories and distribution network better. Local producers can sell their products in distant markets with the same ease and speed as in their home country. Sony Corporation, for instance, can sell its TV sets with the same ease and speed in New York as also in Tokyo. Likewise, Apple can sell its high-tech products with the same ease in Tokyo as in New York.

Another good side of globalisation is also about easy credit, as money flows easily across local and national boundaries. The net result is a virtual growth of the economy across the world. The flip side of globalisation is the unexpected adverse impact due to external occurrences. So even if a small event occurs anywhere globally, the entire production suffers.

Reactions and counter-reactions

The Iran-US problem is not cooling down. Iran has attacked US bases in Iraq with targeted missiles. The US has said that it is counting its losses while Iran has said that approximately 80 US soldiers have been killed. These bases also had soldiers from other countries and their fate is not known. Countries like the UK, Germany and France have cautioned Iran from further such attacks. Israel too has given a stern warning to Iran. The omens are bad. The possibility is that the US may react. Reactions can also have counter- reactions and the end result can be that many countries may get involved in the war.

What will happen to the global economy in general and Indian economy in particular? The answer at this moment is not good. In such an alarming situation what should be the role of a neutral country like India? Should we just watch the situation and witness our economy getting devastated? In the aftermath of the Iranian attack on US bases, the crude price has further escalated by an additional 5%. In just a few days of the turmoil, in totality, the crude price has gone up by more than 10%. Nobody knows what lies in the womb of the future.

‘The price of the crude is going to spike up if there is no quick calming down of the situation. Our revenue-deficit will get widened if we are forced to buy costlier crude. The energy sector is one such sector where we cannot curtail demand by importing less crude than what is needed, as it will have a vicious cyclic impact on our economy’

India has a role

India has a role to play. India must use her position of being a friend to both the US and Iran. There is media speculation that our Prime Minister might have discussed the issue with the US President when he called him to wish him for the New Year. There is no confirmation, however, on this issue, from either side. India has to try for her own good and for the good of the entire world. We have invested in Chabahar port of Iran to counter the development of the Gwadar port of Pakistan, which is being constructed by China. Chabahar port is very important for Indian interests but due to the present situation in Iran, the project may get stalled. So Chabahar is the other interest point we have to guard, apart from the escalating price of crude.

A positive indication is that the Iranian Ambassador to India has suggested that it will be welcome for Iran if India talks to the US to help defuse the prevailing situation.

India has definitely the wherewithal to play her role to save the situation. The world knows it. But India does not mean only Prime Minister and his cabinet. India includes us, the common citizens. We are standing today at a very dangerous cross-road when our economy has slowed down and the impending war like situation in the Middle-East will further badly affect us. We have to stand behind our government and give strength to it. It is very unfortunate that we are busy with small issues, not seeing the impending danger to our economy. Political parties and people are fighting on issues which may be politically relevant, but not good in the national interest, at least, when there is imminent danger to our economy and to a large number of our people working in the Middle-East

Globalisation is here to stay and there are a lot of good things about it. However, we have to guard ourselves from its occasional pin-pricks, like the Iran-US confrontation or US-China trade war, so as to stand strong, even during occurrences of issues which are not in our control. For India, our biggest strength is the ‘demographic dividend’ and we should ensure that it does not become a ‘demographic disaster’. Our economy will crumble if our younger workforce is not united and skilled.

A globalised jungle

Secondly, under globalisation, the world becomes one market and like the law of the jungle, only the fittest survive. And so under the globalised world, only the most innovative and export oriented country gallops. China is a big example of this, as it has become the second biggest financial power in a short time, after harvesting the benefits of its exports in the globalised world.

Third, our media and expatriates have to play a big role as they can create an environment so as to attract the most needed foreign capital. Today, we are seeing that the foreign media is,unfortunately, putting up half-truth stories and creating a negative environment for the free flow of capital. These stories have to be negated by positive news emanating from the country.

Lastly, our corporate world should concentrate more on research and development so as to produce quality products at cost-effective prices. If this happens, then no adverse external situation can stop us and there will be no panic in the economy. Let us resolve to move forward as a stronger country in the globalised world.