Which country is India's best neighborhood

India's economy and the Iran-USA conflict

Indian tea exporters have a new best customer: Iran. The Islamic Republic lost more than 53 million kilos last year - around 75 percent more than in previous years. The good deal was made possible by a trading system based on the Indian rupee that was closed years ago and recently relaunched, with which both countries use the US currency for settlement.

"Thanks to Indian diplomacy, we should be able to remain partners with Iran and provide humanitarian aid, tea and rice to the country," said Azam Monem, director of tea exporter McLeod Russel India Ltd., earlier this week in the US Agency Bloomberg.

However, the tensions in the region endanger the expansion of trade relations. In early January, a few days after the US killed the commander of the Iranian quds units, Kasem Soleimani, Indian Foreign Minister Subrahmanyam Jaishankar made two urgent phone calls: one to US Secretary of State Mike Pompeo and another to Iran's Foreign Minister Javad Sarif. He urged both sides to keep tension as low as possible.

Strategic ports in a crisis region

India's interest in the Iranian port of Chabahar

What is at stake for India in the face of the conflict can be seen, for example, in the Iranian port of Chabahar. To expand it, Iran had joined forces with India and Afghanistan. The so far rather insignificant location is on the Gulf of Oman and therefore strategically located outside the Persian Gulf. In order to head for it, ships do not have to cross the strait of Hormuz, which was ultimately extremely troubled militarily. That takes the Indo-Iranian trade a large part of its risks.

India also got involved in countering the growing Chinese influence in the Gulf of Oman. With the construction of the port of Gwadar in Pakistan, less than 100 kilometers from Chabahar, China had expanded its presence in the region.

The US is not bothered by the new port in Iran, on the contrary: They see it as an opportunity to promote the economy in Afghanistan. That is why they did not include him on their sanctions list. Nonetheless, Indian investors became cautious about the US sanctions and held back in Chabahar as well. This in turn moved the government in New Delhi to cut the budget already planned for the port by around two thirds. Only slowly, after repeated assurances from the USA not to include the port on the sanctions list, the Indian companies are now getting used to the idea of ‚Äč‚Äčinvestments again.

However, these investments are not aimed solely at Iran. In terms of the policy of "enlarged neighborhood" propagated by India, the port is an important gateway to Afghanistan and Central Asia, and ultimately even to Europe.

Narendra Modi visits Indian workers in Doha

New crises in the Gulf as an impending scenario

The Iran-American conflict could have other consequences. It is concentrated on the Strait of Hormuz, one of the most important trade routes in the world. A quarter of global oil and a third of natural gas transport are handled through these. India obtains 65 percent of its oil imports via this shipping route. If the traffic on the route were to fail due to military tensions, or if it were only impaired, this would have direct consequences for the global oil price. That was evident shortly after Soleimani was killed, when the price of oil briefly rose to over $ 70 per barrel.

A permanent price increase would have enormous consequences for India. A jump of ten dollars a barrel would push inflation up 0.4 percent. The poor sections of the population would be the first to feel this. Government attempts to boost domestic consumption have been dampened

An escalating conflict in the Gulf could also have an impact on the around eight million Indians who reside in the Gulf states as guest workers. If they had to give up their jobs, the approximately 40 billion US dollars that they send back home every year would also be lost. The state of Kerala alone lost more than 36 percent of its income.