Indian companies not in crosshairs for now from Middle East conflict: Crisil

Crisil Ratings in its latest report has said that the ongoing conflict in the Middle East, confined mainly to the Gaza region now, has caused only negligible disruption in India's trade so far, and implied that the Indian companies were not in the crosshairs for now. It also said some sectors such as fertilisers and diamonds -- both cut and polished -- may see a slight, but manageable, impact, while for most others impact will be insignificant.

However, the conflict has driven up prices of gold and crude oil. It noted ‘Their trajectories will bear watching, especially crude oil, given India's high dependence on its import. Also, elevated crude oil prices have a cascading impact on a host of other sectors that consume the oil itself or linked raw materials’. India's trade with Israel is relatively low, accounting for 1.9 per cent of total exports and 0.3 per cent of total imports last fiscal. The merchandise exports mainly comprise polished diamonds and petroleum products, including refined hydrocarbons, while imports largely comprise industrial equipment, fertilizers, rough diamonds and precious stones.

For domestic diamond polishers, Israel is primarily a trading hub. Exports to the country were 5 per cent of total diamond exports from India last fiscal. Additionally, 2 per cent of all roughs imported are from Israel. Polishers also have alternative trading hubs, such as Belgium and the United Arab Emirates, with ultimate customers based in the US and Europe. Israel is a major global producer of muriate of potash (MoP) and among the top three countries that India imports from, accounting for 25 per cent of all MoP imports last fiscal. However, the share of MoP (as a final product or as an ingredient in other fertilisers) remains low at 10 per cent of domestic fertiliser consumption.

Crisil said India's ability to source from other countries lowers the supply risk. The Crisil report, however, cautioned that any spillover of the conflict to nearby oil producing and exporting regions could result in supply-related constraints and spiralling prices of crude oil. Within a week of the conflict, crude oil prices rose 4 per cent to $90 per barrel but have stabilised a tad lower thereafter. A sharp rise in crude oil prices will impact linked sectors in India, such as aviation, automotives, paints, tyres, cement, chemicals, synthetic textiles and flexible packaging.