The exchange of accusations doesn’t bode well for the cautious optimism sparked by the US-brokered truce, which aimed to de-escalate the conflict triggered by the Hamas and Palestinian Islamic Jihad (PIJ)’s attack on Israel on 7 October 2023.
The expansion of the Gaza War to Lebanon and the Persian Gulf, driven by the involvement of Hezbollah, Ansar Allah (the Yemeni militant group commonly known as Houthis), Iraqi militias, and the Iranian Revolutionary Guard Corps (IRGC), has long threatened to escalate the conflict beyond Israel and Palestine.
The situation raises a critical question: how might this prolonged war and its potential expansion affect India’s bilateral trade and Indian expatriates in the region?
Stalling economic progress
The threat of escalation overshadows the reconciliatory steps (such as the Abraham Accords) primarily motivated by the desire among the regional countries to focus on economic growth and development and eschew political tensions and geopolitical competition that had become the hallmark of regional politics in the 2010s.
Among the leading countries that focused on advancing economic interests instead of political confrontations are the UAE and Saudi Arabia, besides Türkiye and Egypt. However, the crisis in Gaza and the resultant threat of a regional conflict has once again threatened to push economic growth and development to the back burner.
For India, stakes are particularly high. The Middle East, particularly the Gulf Cooperation Council (GCC) nations, accounts for over $150 billion in bilateral trade annually and is a critical source of energy imports.
Additionally, the region is home to millions of Indian expatriates who contribute significantly to India’s economy through remittances.
Expatriates and remittances
The region is among the top destinations for Indians migrating to different parts of the world for work. In 2023, for example, India was the largest source of emigration, with nearly 18.7 million Indians moving outside for work or other purposes. The six GCC countries have traditionally attracted large numbers of Indians, and as of 2024, almost 9 million Indians live and work in them. Notably, the Indians in the GCC countries form one of the largest concentrations of Indian citizens abroad, along with North America and Western Europe.
Among the regional countries, the largest concentration is in the UAE, with nearly 3.56 million people, including 14,574 persons of Indian origin (PIOs). Saudi Arabia (2.46 million), Kuwait (0.99 million), Qatar (0.84 million), Oman (0.69 million) and Bahrain (0.33 million) also have significant numbers of Indian expatriates.
Indians who emigrate abroad for work have traditionally been a source of remittances, making India the top remittance-recipient country in the world. In 2023, India received US$120 billion in remittances from across the globe, and nearly 30 per cent of the remittance originated in the Gulf region, with the UAE alone contributing 18 per cent.
Potential impact of remittance loss
The most devastating impact for India in case of the widening of the conflict would be on its expatriates. Historically, the safety and security of Indians in the Gulf have been a major preoccupation of Indian policymakers. In the past, the Government of India has sprung into action to undertake or facilitate large-scale rescue, evacuation and repatriation operations during crises to secure Indian citizens in the Gulf. In 1991, for example, India evacuated nearly 180,000 of its citizens from Kuwait after the Iraqi invasion and annexation.
Similarly, during the Arab Spring, India undertook the evacuation of its citizens from Egypt, Libya, Syria, Iraq and Yemen at different times, although on a much smaller scale. During the COVID-19, India launched the Vande Bharat mission to repatriate Indians stranded abroad, with a large number of Indian citizens in the Gulf using it to return home at a distressing time.
Besides the threat to the security and well-being of Indians, widening the conflict would mean a considerable loss to the forex (foreign exchange) inflow to India in the form of remittances. Given that the remittance forms a significant source of forex for India and contributed over 3 per cent to GDP, the loss in remittance from the Gulf region would seriously impact the economy. The loss of trade and commerce will be another serious challenge for India if the war expands to the Gulf region.
Image source: Wikimedia Commons
Trade and energy
In terms of bilateral trade, in 2023-24, nine MENA (Middle East and North Africa) countries were among the top 50 economic partners of India, including the UAE and Saudi Arabia being the third and fifth largest trading partners of India with bilateral trade at US$83.65 billion and US$42.97 billion respectively.
Among others, Iraq (US$33.32 billion), Qatar (US$14.05 billion), Kuwait (US$10.47 billion), Türkiye (US$10.43 billion), Oman (US$8.95 billion), Israel (US$6.53 billion) and Egypt (US$4.68 billion) featured as top 50 trading partners of India. Conventionally, Iran, Syria and Libya too have been among the major trading partners of India but have slipped down over the past decade due to the sanctions on Iran and civil wars in the latter two.
Besides trade, the region is among India’s most important sources of energy imports. Although diversification efforts considerably reduced India’s dependence on the Middle East for oil and gas imports over the years, the reliance on the region for hydrocarbons remains as high as 55-60 per cent as of 2023-24.
Among the regional countries, Iraq, Saudi Arabia and the UAE remain among the top five suppliers, besides Russia at the top and the US at the fifth.
Moreover, Qatar, Kuwait, Oman, and Türkiye are among India’s top 20 energy suppliers. Here, too, the energy imports from Iran, Syria and Libya have been disrupted due to sanctions and conflicts.
Investments and defence
Besides, India has significant business-to-business ties with the regional countries. It has worked towards increasing foreign direct investment (FDIs) and portfolio investments from the Gulf and the wider MENA region. The UAE, Saudi Arabia and Oman are among India’s major FDI sources. In addition, the number of Indian companies doing business and investing in the regional market has witnessed a significant uptick in recent years.
Moreover, countries like Israel are among India’s largest defence trade partners. In contrast, in recent times, India and the GCC countries, especially the UAE and Saudi Arabia, besides Egypt, have discussed defence trade, including joint manufacturing, raising the possibilities of growth in this sector.
The potential of the widening of the conflict to the Gulf region can have devastating consequences for Indians in the area. While the economic impact would mean the loss of jobs, any escalation in the conflict would mean a threat to life, and this would have to be addressed by the Government of India in case the war expands. A contingency plan for such a situation is needed. Therefore, India must be prepared to offset any potential disruption in hydrocarbon supplies.
Post Read Questions
What are the potential economic consequences for India if the expansion of the Gaza War disrupts trade and commerce?
How could the widening of the conflict in West Asia affect the security and well-being of Indians in the Gulf region?
What could be the potential impact of the loss of remittances from the Gulf region on India’s economy?
How might a decline in remittance inflow impact India’s foreign exchange reserves?
What are the possible measures that the Indian government would consider to ensure the safety and security of Indian expatriates in the event of the escalation in the Gaza war?
(The author is an Associate Professor of Middle East studies at Jawaharlal Nehru University, New Delhi. Views are personal. @MuddassirQuamar.)
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Read other articles from the series on Conflicts in West Asia:
Conflicts in West Asia: Israel-Iran war of abrasion
Conflicts in West Asia: A brief history of the Israel-Palestine conflict
Conflicts in West Asia: Iraq in disarray
Conflicts in West Asia: Israel-Hamas war and the Yemen quagmire
Conflicts in West Asia: Kurds and their struggle with statelessness
Conflicts in West Asia: Implications of escalating Gaza war for India
A view shows rubble of a damaged church in Derdghaiya, on the second day of the ceasefire between Israel and Iran-backed group Hezbollah, southern Lebanon November 28, 2024. REUTERS/Aziz Taher 
Image source: Wikimedia Commons
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