War clouds over West Asia: The risks of economic fallout are high

Israel’s attack on Iran signals an ominous widening of the war in West Asia, threatening a global economy that is struggling to come to terms with the havoc of American President Donald Trump’s tariff wars. The barrage of air strikes that the two nations have exchanged so far has heightened the chances of an escalation into a proxy war between Israel, supported by the United States (US), and Iran-sponsored groupings in the region, the Houthi and the Hamas, with the potential of disrupting critical trade routes and air space on both sides of the Arabian Peninsula. East of Saudi Arabia, Iran’s position at the northern end of the Strait of Hormuz could become a potential choke point should Tehran choose to block the waterway in retaliation for sustained Israeli attacks, given that Oman and the United Arab Emirates at the southern end are allies of the US with military bases and listening posts. 

  The Strait of Hormuz accounts for the transport of almost a quarter of global oil supplies and a significant portion of the world’s liquefied natural gas. On the western end, Iran’s clients, the Houthis of Yemen, could intensify their attacks on international shipping via the Red Sea and Suez Canal. This area accounts for about 15 per cent of global maritime trade and is crucial for links between Asia and Europe. Added to this are rising prices of crude oil and gas. Prices of crude oil jumped 7 per cent and gas 5 per cent after hostilities broke out. The consequences of the 1991 Gulf War remain a cautionary tale in this respect. 

The fact that Israel initiated these hostilities while US-Iran nuclear talks were on has raised suspicions that the attacks were coordinated to put pressure on Tehran over its uranium-enrichment programme. Tel Aviv deployed as an alibi the fears that Iran has the capability to produce multiple nuclear weapons within a year, whereas Iran insists its enrichment programme is for peaceful purposes. But given that Israel is widely believed to possess nuclear weapons — which it denies —heightens the possibility of an arms race in a confrontation fraught with extreme peril. Since Israel has inflicted real harm on Iran — killing several generals and nuclear scientists and damaging its nuclear facilities — neither leadership can afford to back down. For Iran’s Shia Islamic regime, war with Israel imparts legitimacy to its increasingly unpopular authoritarian rule. Israel’s Benjamin Netanyahu rightly fears losing power if he ends hostilities on both frontiers and calls elections. Meanwhile, even as Israel seeks to annihilate Gaza, it is by no means certain that its destruction of the top echelons of Iranian client Hamas has decimated this grouping. The security risks for Israel remain as potent as ever. 

Given the studied indifference of the Western powers to Israel’s systematic destruction of the Palestinians in Gaza, the strong statement by the Shanghai Cooperation Organisation (SCO), comprising nine Eurasian member-states condemning Israel’s attacks on Iran on June 13, is a salutary, if symbolic, message. Since India has relations with both combatants and its economy stands to lose more than any other SCO member from this conflict, it has chosen to carve out an independent position calling for dialogue and diplomacy. As with its stance on the Ukraine-Russia conflict, this can be seen as an unexceptionable position in line with its perceived national interests.