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Summary
A flare-up in crude oil prices will worsen if lose-lose dynamics set in. Yet, that may turn out to be the milder fallout of the US-Israeli attack on Iran. Uncertainty hangs thicker over its hard global impact. Think of nukes—and the stake of other countries in US financial and geopolitical authority
The American-Israeli attack on Iran raises a number of vital questions for India and the rest of the world, delving into which is necessary to make the best of a bad situation. The prices of oil and liquefied natural gas have begun to rise as Iran attempts to choke the Strait of Hormuz, through which about one in every fourth barrel of all seaborne crude oil moves.
If this grip lasts, it will make energy imports dearer, weaken the rupee and give inflation a cost-push. India’s central bank would need to keep knock-on effects under watch; likewise, at another level, the volume and direction of capital flows.
For now, stockpiles of oil are in focus. If tankers that carry almost a fifth of the world’s daily usage cannot exit the Gulf, import-reliant countries could soon run acutely short. The US and China have large reserves. Our strategic storage would easily help us tide over more than a week; plus oil companies have stocks too. Still, we may need to resume shipments from Black Sea ports if US and Venezuelan supplies cannot fill our gaps.
Since high fuel costs would not suit US President Donald Trump as mid-term polls approach, his political interest lies in shrugging off the use of Russian oil to plug shortfalls. But then, Iran would need to ship oil out of the Gulf too, so its retaliatory blockade may be short-lived. As with any war, lose-lose dynamics now risk setting in.
The war has already spread around the Gulf and Levant, with Saudi oil facilities targeted too, and if Iran-aligned Houthi forces in Yemen try to clamp the Suez Canal as well, already volatile freight and insurance costs could rise further. With China in the same boat as India, perhaps Asia’s big two could exercise some diplomatic clout to minimize sealane disruption.
How any scenario pans out depends on how long hostilities last.
Reports suggest that Iran’s battered regime is prepared to draw out the conflict and make it as costly for the US and Israel as possible. Whether the US-Israeli attack rallies Iranians in favour of the regime or against it is a matter of conjecture for now.
Internally, what began as a rebellion born of economic hardship may turn into a test of the Islamic Republic’s institutional frame and its ideological appeal.
Given how Iran’s alleged push for nuclear weapons led the geopolitical narrative in the war’s run-up, all that’s certain, unfortunately, is that other middle powers will take away the lesson that in a world whose rules can openly be flouted by the mighty, they are safer with an arsenal of nukes of their own than without one.
When Trump began his presidency with rhetoric of ending wars and focusing on America, the world had no inkling that the US would turn violator-in-chief of Pax Americana—the US-set world order based on a consensus of rules.
Regime change in Venezuela has swiftly been followed by the same aim in Iran, with fist-waves over Greenland as an interlude.
‘Might is right’ has been spelt out as the new maxim. This makes an arms race all but inevitable; that too, with nuclear options back on the table. If Germany cannot count on the US defence umbrella, nor can Japan or South Korea.
The world has grown fraught with geopolitical dangers we had hoped to leave behind. As the interest of countries in US power declines, so might their stake in its economic dominance. This could impact not just the US economy, which borrows a lot from abroad, but the world of capital as we know it.
Uncertainty doesn’t just hover over an oil bill. It foreshadows the future. India must prepare appropriately.
English (US) ·