Ziraat Times Special Report

Tensions are rising in the Persian Gulf region for a new confrontation between the US, the UK and Iran. A potential war between Iran and the US could have a serious economic impact on Jammu & Kashmir. This week Ziraat Times analyses the situation and what a potential armed confrontation in the Gulf region could mean for Jammu & Kashmir. 

The seizure of a British oil tanker by Iranian security forces on Saturday has heightened tensions in the Persian Gulf region.  This development is said to be as a retaliatory action by the Iranians for the seizure of their tanker by the Royal Marines off Gibraltar near Spain earlier this month. The parties which helped seize the Iranian ship said that it was suspected of carrying oil to Syria in breach of EU sanctions.

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Potential Impact on India

In 2018, India imported 84 percent of its total crude oil needs. About 70 percent or two of every three of those barrels was sourced from the conflict-prone Gulf region.

Indian economic analysts say that a major war in the Middle East threatens to push up consumer prices and widen the nation’s external deficits.

Every $10 increase in the price of a barrel of crude widens India’s current-account deficit by about 0.4 percent of Gross Domestic Product, said Sonal Varma, chief India economist at Nomura Holdings Inc. The country is already struggling to replace Iranian barrels lost due to US sanctions, she said.

Before the US sanctions, around 10 percent of Indian oil imports came from Iran, according to government data.

India’s 39.1 million barrels of emergency crude reserves are only capable of meeting its needs for 9.5 days. If a war breaks out, given the long distance between reserves and Jammu & Kashmir and the logistical hiccups on Srinagar-Jammu national highway, supplies could either take a long time to reach the state or they would not reach the state altogether.

Now the union government is planning to add two new reserves with a combined capacity of 47.6 million barrels.

Impact on Kashmiri expats in the Gulf region

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In 2018, over 8 million Indians worked and lived in the middle east. There are an estimated 20,000 families from Jammu & Kashmir that work and live in the Gulf region. The estimated population of J&K residents in the Gulf region is about 85,000. 

According to data compiled by Ziraat Times drawn from the RBI, about Rs 6000 crore are remitted by this population to J&K every year. In case of a war in the Gulf region, a large number of expats might have to relocate, especially those living in and around the Persian Gulf countries and cities like Dubai, Qatar, Abu Dhabi, Saudi Arabia, Oman, Kuwait, Iran and Iraq.

In case of a war, the real estate sector in the Gulf region, particularly in the UAE, is feared to be hit hard. The investment that J&K expats have made in UAE, especially in Dubai, Sharjah and Abu Dhabi could be at risk due to an anticipated collapse of real estate prices in these cities. 

Why the Strait of Hormuz is important 

A potential war between Iran and the US has the potential to disrupt the entire world. This is due to the geographic location of Iran as the conflict will most likely choke the Strait of Hormuz, from where the world’s 20% of oil travels through every day. The waterway is only 21 miles wide at its narrowest and the width of the shipping lane in either direction is just 2 miles. 

The bulk of traffic from the Strait of Hormuz heads for Asia, including India. What is worrisome is the fact that more than 50 percent of India’s imported oil passes through the strait.

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According to data released by Directorate General of Commercial Intelligence and Statistics (DGCI&S), out of the total 207.3 MT (Metric Tons) of crude oil imported in 2018-19, 46.61 million tonnes was imported from Iraq, 40.33 million tonnes from Saudi Arabia and 29.9 million tonnes from Iran. The rest of the imports are from the UAE, Venezuela,  Nigeria and the United States. 

If the strait is chocked and trade is stopped, tankers carrying oil to India might be forced to navigate via the longer and dangerous Gulf of Aden route, raising the cost of imports considerably. 

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