The West Asia crisis hits home

Within 10 days, the Islamic regime announced that the son of the slain Ayatollah, Mojtaba, would be the new supreme leader. The message to the “Great Satan” (Khamenei’s phrase for the US) was that there was regime continuity and consolidation in Iran after the “martyrdom” of Ayatollah Khamenei.

In mid-March, Ali Larijani, Iran's secretary of the Supreme National Security Council was killed in an Israeli airstrike along with Gholamreza Soleimani, the head of the Basij paramilitary force, a key Islamic Revolutionary Guard Corps (IRGC ) subordinate branch responsible for internal security and suppression of protests. This kind of relentless decapitation of the senior Iranian leadership seeks to weaken the regime —though the result may be the opposite.

The war entered its fifth week on March 29, and as of mid-March, the conflict has been intense with ongoing US-Israeli strikes, Iranian missile/drone retaliations (including new Sejjil ballistic missiles and Russian-modified Shahed drones), proxy escalations (Hezbollah in Lebanon, Iraqi militias), and threats to Gulf states. Casualties are in the thousands on the Iranian side and much lesser for the US-Israel combine. Considerable damage has been inflicted by Iran on US assets in West Asia and most of the Gulf states have been scarred. At the time of writing, there is no indication of a durable ceasefire and President Trump has rejected Iranian terms, and Iran vows to fight “as far as necessary”.

The strategic consequences of this war are varied and have adversely impacted the global geo-economic and energy domain, as also the geopolitical and security domain with significant downstream implications for India.

The biggest strategic message for India and the world is stark — reduce the current hydrocarbon dependence/addiction and switch to alternate/renewable energy options. This is not merely a tactical imperative triggered by the war, but a long strategic compulsion, given the fossil-fuel/greenhouse gas and global warming linkages.

The war’s most immediate worldwide impact was on energy security. Iran threatened and partially disrupted the Strait of Hormuz- the critical chokepoint for carrying almost 20 per cent of global oil and significant liquefied natural gas (LNG) exports from the oil-rich Gulf. From as many as 140 ships transiting the Hormuz on a daily basis, in mid-March, the numbers had come down to single digit. Shipping in the troubled region is stalled or rerouted due to high or no insurance cover. Attacks on tankers and infrastructure as in the US strike on Iran’s Kharg Island and Iranian counterattacks have occurred.

Oil prices surged sharply with Brent crude hitting a near $120/barrel peak in early March and have since fluctuated. If the Hormuz Strait is fully blocked, oil prices could potentially spike upwards of $110, touching $150. Emergency reserve releases do offer temporary relief, but sustained disruption risks will lead to stagflation (inflation plus stagnation).

The broader effects include higher shipping/insurance costs, exhausted “just-in-time” inventories (electronics, autos), triggering supply-chain chaos in Asia and Europe. Global inflation spikes, Gross domestic product (GDP) growth downgrades (especially 2026 forecasts) and stock-market drops are the more visible negative consequences, and the cumulative effect will be a deterioration in human security in the more vulnerable low per capita nations.

India’s economy, which is highly dependent on hydrocarbon imports, has been adversely impacted along its classic 3F vulnerabilities- fuel, food and fertiliser. India imports 88 per cent of its crude, relies heavily on Gulf-sourced inputs for farming, and has thin buffers against global commodity shocks. The Strait of Hormuz carries more than 50 per cent of India’s crude/LNG and a large quantity of fertiliser trade. Transit through the Hormuz has been dramatically reduced since insurance rates have become prohibitive and hence most tanker traffic halted.

The degree of dependence on the Hormuz highlights a strategic vulnerability for India, as it does for many other major oil importers. India consumes 5.5 million barrels/day of crude, of which almost 88 per cent is imported.

Of this volume, more than 50 per cent transits the Hormuz, which is the export route for major oil producers in the region- mainly Iraq, Saudi Arabia, the United Arab Emirates (UAE), Kuwait and Qatar.

Assured availability of affordable fuel is inextricably linked to national GDP growth and per capita income, as also the primary human security determinants. The present 3F outlook for the short-term (till mid-May) is manageable due to current stocks, diversification and priority allocation, and no acute crisis is foreseen.

However, if there is a long-term disruption, depending on the trajectory of the war, wherein the Hormuz stays closed, and the Suez-Red Sea route is also impacted, the medium-term implications are likely to be visibly negative. These include surging fuel imports, ballooning subsidies (fertiliser and food), thereby resulting in higher  stands for current account deficit and a GDP growth downgrade. Chief Economic Adviser V Nageswaran made a cautious projection, noting that he sees limited/minimal drag if oil stays moderate (below $90), or the disruption is short-lived. He warned of a fairly significant downside (1per cent loss in GDP growth) in a prolonged high-price scenario, (oil above $100), which is Hormuz- related and a sustained attack on energy assets like South Pars.

India would be hit hard, and the downstream fiscal effect will be a significant weakening of the rupee and crossing the ₹100 to a US$ would have a very significant psychological impact, apart from the actual forex impact.

The war crossed an energy “red line” on March 18 when Israeli airstrikes hit Iranian facilities linked to the South Pars gas field, including production platforms and refineries. Hitherto energy-related infrastructure was deemed safe and not to be targeted, but the Israeli decision to weaponise energy bodes ill and is a significant escalation.

In retaliation, Iran launched strikes on energy sites in Qatar, Saudi Arabia, Kuwait and the UAE, broadening the conflict to Gulf energy infrastructure. On March 19, Brent touched $ 115 and the amber lights are flashing.

India is responding pragmatically: scouting alternatives, building reserves and using diplomatic/fiscal tools (as in excise cuts to cap retail fuel). Ramping up Russia oil imports and other viable options are being pursued, but the uncertainty is abiding. A prolonged war exposes India’s structural reliance on Gulf energy/inputs and will call for a review of alternate policy options for the medium-term viz: accelerating strategic storage, switching to bio-fertilisers and non-Gulf hydrocarbon sourcing will be critical.

Given the inherent 3F interlinkages, fuel shock impacts the entire national economic and fiscal domain, and the inference is that India’s “Goldilocks” phase (low inflation plus high growth) faces serious risk. The seriousness of this exigency will be dependent on the duration of the war and the destruction of the West Asian region and the geopolitical contours of the final outcome.

The geopolitical implications of this war will be a profound churning and the West Asia region will no longer be the same. The outcome of this war can be envisioned in four possible scenarios.

A US-Israeli tactical victory after prolonged attrition of Iran, forcing it to accept a ceasefire as the defeated party; a defiant Iran digging its heels in and displaying the “this is the last war” syndrome — thereby compelling the attackers to withdraw; an internal power struggle that displaces the Islamic regime and the IRGC with a new secular government; and Iran descending into a Syria/Libya like situation, wherein instability and near civil war conditions engulf the country. Each scenario poses different challenges for India, and whether a triumphant Trump or a petulant one, India will have to navigate the bilateral relationship with the US (till a new White House incumbent takes over) in a very objective and calibrated manner. Strategic prudence is called for, given the long-term interests that are on the anvil and whose foundation was laid in 2008/09.

Iran’s relevance for India is the abiding reality that it is part of the extended Indian neighbourhood and a major power in its own right. Assuming that Iran recovers its position as a major hydrocarbon exporter and that the Hormuz will return to some semblance of normalcy, the need to invest in this bilateral with Iran and insulate it from the vagaries of US policy will be tricky but necessary.

The larger strategic fallout for India will be a West Asia that is no longer the oasis of stability and prosperity and a magnet for the Indian diaspora. Remittances from West Asia are a significant percentage of India’s total forex revenues, and this was $135 billion in the last financial year. Of this, 38 per cent was from West Asia and in the short-term, this will shrink. States like Kerala will bear the brunt of this war flux, and providing buffers/safety nets will be a governance challenge.

The degree to which India will be involved in the reconstruction of post-Epic Fury West Asia over the next few years remains indeterminate for now. However, the larger strategic challenge for India is to envision the extended neighbourhood in a holistic manner over the next decade, a vision that goes beyond hydrocarbons and diaspora remittances from West Asia. The next two years will be one of consolidation and reconstruction for the region in the main and the world in general after the Epic Fury tsunami. Notwithstanding the convulsions triggered by this war, it is expected that India will emerge as a $7 trillion economy in the early 2030s and the third largest single nation GDP after China and the US.

India will need to evolve a forward-looking regional policy that will harness its inherent strengths and move up the partnership ladder and not be perceived as the symbolic ‘carrier-of-water and hewer-of-wood’. New technologies and the nascent ambition that West Asia had harboured of nurturing data centres and artificial intelligence hubs will hopefully be resurrected, and India could play a meaningful role. Iran remains the gateway for India’s connectivity to Central Asia, and the Chabahar investment will have to be brought back on track after the Epic Fury dust has settled.

India’s vulnerabilities came into focus in the wake of Epic Fury, and the limits of its strategic autonomy were outlined. The US military action extended into the Indian Ocean and the sinking of the Iranian warship IRIS Dena is illustrative.

The geopolitical trapeze for India in the next decade (mid 2030s) will be to retain a credible multi-aligned orientation wherein it can engage with the major powers and still remain empathetic to the anxieties and aspirations of the Global South. Studied restraint and strategic silence, while having to deal with a feckless US President, acting with brazen impunity in violation of international law and traditional norms of the liberal order, has enabled India to weather the current storm. This stance has protected India’s core interests in a period of unprecedented geopolitical and diplomatic turbulence.

But timidity, wherein India was unable to condole the assassination of Iran’s supreme leader, the death of schoolchildren in a missile strike or Iranian sailors consigned to a watery grave does not burnish the Indian image.

If two decades later India’s 2004 tsunami relief is remembered in laudatory terms, the recall of Epic Fury at a future date will be leavened with disappointment at India’s tenacious reluctance to offer condolences in an appropriate and empathetic manner.