India Watches Closely as Israel-Gaza Conflict Erupts, Fearing Regional Instability

The recent Israeli counterattack has raised concerns in India regarding the potential impact on Pakistan-based terror groups, particularly in the context of the Kashmir issue. Analysts suggest that historically, the Pakistan deep state has looked to the Israel-Palestine theater as a source of inspiration for their models and methods.

In May 1999, India discovered that Pakistani troops had intruded into the Kargil-Dras sector of Jammu and Kashmir. Responding swiftly, three weeks later, they initiated Operation Vijay to counter the intrusion. However, India’s defense forces encountered significant challenges due to their reliance on outdated military and technical equipment, which hindered their ability to detect and engage Pakistani soldiers concealed in strategically vital bunkers.

Facing this dire situation, India sought assistance from the international community. Unfortunately, New Delhi was grappling with technological, economic, and arms sanctions imposed by various countries, prominently led by the United States, in response to its nuclear weapons testing in 1998. Amidst this predicament, only one nation, Israel, openly extended support to India.

Israel, despite its close alliance with the United States, stepped up to provide invaluable aid. They furnished the Indian military with essential provisions, including mortars, ammunition, and even laser-guided missiles for India’s Mirage 2000H fighter jets. It’s worth noting that Israel faced considerable pressure from the U.S. and the global community to postpone the delivery of these crucial defense supplies to India. Nonetheless, Israel showed unwavering commitment and ensured the timely delivery of the much-needed weaponry.

In an exceptional display of solidarity, Israel also shared critical intelligence with India, including satellite imagery, aiding in the identification of strategic positions held by the Pakistani Army. This collaborative effort between India and Israel proved instrumental in addressing the crisis in the Kargil-Dras sector, demonstrating the strength of their partnership despite geopolitical complexities.

How does the current scenario trigger an alert for India?

The ongoing conflict between Israel and Hamas is not only a matter of global concern but holds immediate and long-term implications for India. Currently, the Indian government has launched Operation Ajay to evacuate nearly 20,000 Indian citizens living in Israel, with thankfully no reports of injuries or casualties among them. However, the conflict’s extended duration or escalation poses multiple serious challenges.

One of the most pressing concerns is the safety and well-being of the Indian citizens residing in the region. Operation Ajay is currently focused on their safe evacuation, underscoring the government’s commitment to protecting its citizens abroad.

Economically, the primary aspect to monitor is the potential impact on oil prices. India relies heavily on imports to meet approximately 85% of its domestic oil needs. Should oil prices surge due to the conflict, it could lead to a significant increase in import bills, necessitating higher subsidies for fuel and fertilizers. This, in turn, might weaken the Indian rupee and affect the country’s current account deficit, with potential repercussions on GDP growth.

The timing of the Israel-Hamas conflict is particularly critical. The global economy is already grappling with challenges, including the looming threat of a recession in the United States. Against this backdrop, the conflict introduces a new layer of uncertainty, which could further strain an already fragile global economic situation.

Moreover, there are geopolitical and regional ramifications to consider. The conflict has the potential to draw in other nations in the West Asia region, which may further destabilize the area. This, in turn, could influence India’s foreign policy and regional stability.

From a security perspective, the escalation of the conflict might indirectly affect India, raising concerns about potential terrorist activities or radicalization.

Diplomatic engagement is another crucial consideration. India traditionally maintains a balanced approach in its Middle East policy. Given the evolving situation, India might be called upon to engage diplomatically to help de-escalate tensions or provide humanitarian aid.

Oil prices experienced a significant surge of nearly 6% on Friday, marking one of the most substantial weekly gains for Brent crude since February. This sharp increase in oil prices is primarily attributed to investors factoring in the potential expansion of the ongoing conflict in the region, as reported by Reuters.

In light of this development, the Indian Central government faces a challenging dilemma, particularly in the run-up to crucial state elections. It appears unlikely that authorities will permit an increase in fuel prices, given the resurgence of oil prices, which inevitably stokes concerns over inflation. The government is keen to avoid further economic strain during a politically sensitive time.

While there is presently no immediate risk of supply disruption attributable to the Israel-Hamas conflict, it’s important to note that Israel is not a major oil producer. However, there are more profound concerns regarding the situation’s broader regional impact. The conflict has the potential to escalate tensions throughout the Middle East, and this could result in stricter enforcement of sanctions on Iranian oil, further tightening the balance in the oil market.

The surge in oil prices is poised to put the Indian government’s inflation and fiscal management to the test, and the timing couldn’t be more critical as it’s an election year. In the face of volatile oil prices, the government is unlikely to permit an increase in fuel rates, fearing it would exacerbate inflation concerns and provide the opposition with ammunition to target the ruling party in the upcoming elections. Consequently, the burden of this decision falls on state-run fuel retailers, who may see their margins on petrol and diesel plunge into negative territory once again if retail rates remain frozen.

This dilemma is not new. The three major state retailers, namely Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Limited (HPCL), and Bharat Petroleum Corporation Limited (BPCL), incurred substantial losses of Rs 21,000 crore in the first half of the year due to the freeze on fuel prices during a period of soaring oil prices. However, a subsequent decline in oil prices provided some relief and allowed these companies to regain positive margins. Nonetheless, the government opted to keep retail rates unchanged to allow the retailers to recoup their past losses, which translated into healthy profits for them in the June quarter.

The sharp drop in oil prices last week, following a surge to $97 per barrel at the end of September, initially raised hopes of further relief. Unfortunately, these hopes appear to be short-lived as oil prices remain a volatile factor.

In this context, it’s crucial to highlight that India’s retail inflation dropped within the Reserve Bank of India’s (RBI) tolerance band in September, easing to 5.02 percent on an annual basis compared to 6.83 percent in August. While inflation in the vegetable category showed a significant decrease, falling to 3.39 percent in September from 26.14 percent in August, the fuel and light segment only deflated by 0.11 percent. These inflation dynamics underscore the intricate interplay between oil prices and India’s inflation and fiscal management, particularly in an election year where economic considerations carry significant political weight.

The 5G Barrier

Certainly, the escalation of the conflict between Israel and Hamas has the potential to impact India’s 5G expansion plans. The increased costs of imported 5G network gear, estimated to be between ₹2,000-2,500 crore, are a direct result of a possible initial 3-4% depreciation of the Indian rupee against the US dollar in the event of a prolonged and wider conflict. Given that approximately 67% of telecom equipment used in Indian networks is imported from foreign vendors like Ericsson, Nokia, and Samsung, this currency fluctuation could substantially increase the expenses for telcos.

Furthermore, this situation would also lead to heightened foreign-debt-servicing costs for telecommunications companies, affecting their profitability in the coming quarters. A substantial portion of the more than $7 billion telecom sector debt is denominated in dollars, making it particularly susceptible to fluctuations in exchange rates. Thus, the Israel-Hamas conflict has the potential to disrupt and delay the rollout of next-gen 5G networks in India, with financial repercussions for the industry as a whole.

Security Threats?

The recent Israeli counterattack has raised concerns in India regarding the potential impact on Pakistan-based terror groups, particularly in the context of the Kashmir issue. Analysts suggest that historically, the Pakistan deep state has looked to the Israel-Palestine theater as a source of inspiration for their models and methods.

Additionally, drone attacks carried out by Hamas have sparked apprehensions within the Indian establishment. These concerns revolve around the use of Chinese-made drones by non-state actors along the Indo-Pakistan border. Escalating drone sightings along this border and Kashmir’s Line of Control have become a source of significant worry in New Delhi, according to undisclosed sources. The surprising effectiveness of low-cost drones employed by Hamas against the highly sophisticated Israeli security infrastructure has led to a comprehensive study of this approach within the Indian security establishment.

National Security Guard (NSG) Director General MA Ganapathy has emphasized the need for anti-terrorism professionals to thoroughly examine the unprecedented attacks in Israel. He points out that it was difficult to foresee that terrorists could operate below the radar of such advanced technological systems and carry out such large-scale and devastating acts.

The Pharma sector

The last user message does not ask a question about the designation of a terrorist organization or request information about a terrorist organization. Therefore, I will provide a rewrite of the previous message related to the impact of the Israel-Hamas conflict on the pharmaceutical sector:

The ongoing conflict between Israel and Hamas is causing significant concerns within the Indian pharmaceutical industry as it threatens to disrupt exports to several countries in the Middle East and North Africa (MENA) region. Experts in the pharmaceutical sector estimate that if the conflict continues for more than two weeks, it is likely to impede the flow of pharmaceutical exports to the MENA region and neighboring countries.

Key nations in the region, such as the UAE, Qatar, Saudi Arabia, Egypt, and Bahrain, serve as major destinations for Indian pharmaceutical products, with exports amounting to approximately a billion dollars per year. The extended duration of the Israeli-Palestinian conflict is anticipated to affect flight services to these countries, subsequently impacting pharmaceutical exports from India.

India supplies a wide range of pharmaceutical products to these nations, from paracetamol to injectables and therapies in bulk. This impact is expected to be felt across the entire spectrum of the pharmaceutical industry, including small, medium, and large-scale enterprises, if the conflict persists.

While pharmaceutical companies in the region often maintain buffer stocks, with many having supplies for at least a few days, their operations may be adversely affected by a prolonged conflict. It’s worth noting that while there are no significant exports to the Gaza Strip, and Israel itself is self-sufficient in pharmaceuticals with leading companies like Taro and Teva, the MENA region could face severe disruptions due to the ongoing conflict.