Will the India-Middle-East Economic Corridor (IMEEC) be hit hard and derailed before it materialisesdue to the Israel-Iran tension and the consequent Middle-East crisis? How much will the Indian foreign trade suffer due to escalating tension in the Middle East and what strategy has India adopted to compensate for the damage?
What Is India-Middle East-Europe Economic Corridor
To improve international trade and have direct, uninterrupted and dedicated access to the European Union and the USA, the India-Middle East-Europe Economic Corridor (IMEC) was planned in 2023. It took a concrete shape after an MoU was signed by the governments of India, United States, United Arab Emirates, Saudi Arabia, France, Germany, Italy, Jordan and the European Union on September 9, 2023, on the sidelines of the G-20 meeting.
It will have two parts- while the Eastern corridor will connect India to Gulf countries, the Northern Corridor will connect the Gulf to the European Union.
Will IMEEC Suffer?
Experts believe this project may be jeopardised now with the main stakeholders sitting with their fingers crossed and adopting the wait-and-watch policy as the Israel-Iran war is looming large over the Middle East area.
With Saudi Arabia and the United Arab Emirates being the main stakeholders of the Eastern Corridor and their perceived enemies fighting at their doorsteps, it is most unlikely that they may pay attention or make an investment to this project at this juncture. The second part of the project- Northern Corridor can be considered only after the first part is completed.
Indian Exports Fall
However, the main concern for India is the deteriorating international trade and the danger of it worsening. According to the Global Trade Research Initiative, while the overall Indian exports fell by 9%, the export of petroleum products slipped by 38% from $ 9.54 billion in August last year to $5.95 billion.
Exports To Europe To Suffer
Indian exports to Europe came down by 21% in 2023 as the demand for low-end engineering products, textiles and garments fell because of increased shipping costs. The silver lining is the fact that while the exports to the Gulf Cooperation Council increased by 17.8%, those of Iran went up by 15.2% in 2023 despite the Israel-Hamas War in the Gaza Strip.
Red Sea Crisis
The International Monetary Fund has said in its report that international trade through the route of the Suez Canal has come down by 50% due to increased shipping costs and the dangers of being attacked by the Houthi militants in the Red Sea.
If media reports are to be believed, Houthi rebels in Yemen have targeted more than 80 merchant ships in the Red Sea with missiles and drones since the Israel-Hamas War in the Gaza Strip started in October. Besides, they seized one vessel and sank two. They have fired missiles and sent drones indiscriminately irrespective of the origin or the ownership of the vessels.
Shipping Through Cape of Good Hope
On the other hand, shipping through the Cape of Good Hope has gone up by 74% even though the ships have to cover a much longer distance taking more time, besides increased cost. In the first two months of this year, a rise of 15% in exports through this route has been registered.
Will the Middle East Crisis Escalate?
As the Israel-Iran tensions have escalated to a new height, Tel Aviv is engaged in bombings four places at a time- Gaza Strip, Lebanon, Yemen and Syria, Israel and Iran are staring at an all-out war the situation is most likely to worsen. It may disrupt the supply chain, the crude prices may shoot and different economies may be hit in several different ways.
It may get further complicated if the Iran-Israel War breaks out and other nations join it. India has remained neutral in the crisis and emphasised the need to maintain restraint, stop the war immediately and respect human rights.
It has called for a ceasefire in the Gaza Strip. India has also maintained a wait-and-watch policy in the Israel-Hezbollah showdown. However, if the crisis further escalates, the situation may be more grave for Indian exports.