In the absence of conditions for a swift end to Israel-America's war on the Gulf nation, India faces inflation and curtailed exports
Higher oil and LNG prices, disrupted exports, threats to the lives of migrant Indians working in West Asia, and India’s slippery stand on the US-Israel joint attack on a fellow member of the BRICS grouping — Iran is a member of BRICS with effect from January 1, 2024 — dominate the discussion in India on the fallout of the conflict in West Asia.
These are all valid concerns, but the consequences of the conflict go beyond these, and threaten to make the world a far more dangerous place — more nations spending more on arms, some middle powers seeking to acquire nuclear weapons, and nations at the receiving end of Artificial Intelligence-enhanced, precision strikes from the air choosing to respond asymmetrically with terror and cyber strikes.
‘War of devastation’
The risk to oil and gas supplies depends on how long the conflict lasts.
US President Donald Trump has called upon the people of Iran to rise up against the Ayatollah regime and liberate themselves. The US seems to have abandoned the hope that the operation would end in just four days, with Trump now calling on Americans to prepare to see more US casualties over the four weeks or more of conflict in Iran.
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The US Secretary of War, Pete Hegseth, says this is a war of devastation, in which high-tech strikes from the air would terminally degrade Iran’s missiles and naval capability, and that the US does not intend to put boots on the ground to carry out the regime-change already initiated with its decapitation, with the blowing up of Supreme Leader Ayatollah Ali Khamenei and his close deputies in a missile strike.
‘Iran’s drizzle strategy’
It is puzzling, to say the least, why Iran’s leaders chose to hold their confabulations in an official government building, instead of in some bunker deep underground, beyond the reach of Israeli-American missiles, which a modicum of prudence should have guided Iran’s leaders to expect any moment.
Iran wants the war to be regional, across America's Arab allies — firing off old missiles and drones in limited numbers to deplete air defence munitions, saving more advanced weapons for later use.
Did the Iranians fail to find out how deeply their systems had been penetrated by Israeli intelligence, from the experience of targeted bombing the last time around, or did they choose to feed Israel misleading intelligence using Israeli covert operatives left in place? Is there some deep Iranian dissimulation at work?
The fact that Iranian attacks continue across the region suggests that a functional leadership structure is in place. Iran wants the war to be regional, across America’s Arab allies. The Financial Times reports a deliberate drizzle strategy on Iran’s part, firing off old missiles and drones in limited numbers to deplete air defence munitions in target locations, saving more advanced weapons for later use.
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That is a sign of the counterattack being planned and led, not taking the form of any wild clawing by a headless chicken in its death throes. This could mean extended hostilities that could keep the Strait of Hormuz, through which much of the oil from West Asia flows to the rest of the world, closed for an extended period.
A portion of Saudi oil could potentially flow across the land to its southwestern port on the Red Sea, and cross into the Arabian Sea without having to go through the Strait of Hormuz. However, Yemen, a littoral state on the Red Sea, is home to Iranian clients, the Houthis, and they could prevent exit from the Red Sea to the Arabian Sea, as they had made the Suez Canal unusable earlier.
Will the people of Iran revolt?
Of course, the war could end sooner if the people of Iran rise in revolt against the regime, as Trump has been urging them to. The regime has well-articulated institutions, and these institutions have deep roots. In the normal course, the effect of a foreign attack on a nation would produce a rally-around-the-flag effect, consolidating, rather than weakening, the regime.
However, the current Iranian regime stands isolated from large swathes of the population, as the repeated large popular protests against the regime testify.
In 2021, drought-struck people rose up against the government’s indifferent efforts to supply water. In 2022, the women's life freedom protests in the wake of the death of a young, Kurdish-Iranian woman, Mahsa Amini, in police custody, after she had been detained for the crime of not wearing her hijab to the satisfaction of the regime’s moral police, had lasted several months with participation from across the land.
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In the past few months, there have been widespread protests against economic mismanagement resulting in steep inflation, culminating in violent repression that has reportedly killed thousands of people.
A regime intact
The regime is intact, even if its top leadership has been removed. Therefore, dispersed disaffection among the population can find expression as rejoicing over the death of the Ayatollah but will find it difficult to precipitate a rebellion that uproots the regime — unless catalysed by the unexpected rise of a new popular leader.
In the normal course, the effect of a foreign attack on a nation would produce a rally-around-the-flag effect, consolidating, rather than weakening, the regime.
A US-led invasion by land troops could topple the regime, but it seems unlikely. That would create US casualties in much larger numbers, and provoke a backlash from Trump’s MAGA base, which sees no reason for the US to spend men and treasure on foreign wars.
Israel might be tempted to send in its troops, but again would risk being swamped in a prolonged war, for which there would be appetite only among a minority of zealots back home.
Higher oil prices and inflation
If the regime is not toppled, it would decide when the hostilities end, and that would mean an extended period of curtailed oil supplies from the region. Russia would be a direct beneficiary.
Oil could come in from Nigeria, the Americas, and Russia, avoiding the Strait of Hormuz in the Persian Gulf and Bab al-Mandab, which separates the Red Sea from the Arabian Sea.
Trump does not want pump prices to rise too much in the US, where his chances in avoiding a Democrat-controlled Congress are not over bright. Russian oil flowing in to augment supplies curtailed by disrupted supplies from the Persian Gulf would be welcome, whatever prior rhetoric about the need to end the war in Ukraine and staunch Russia’s oil revenues to that end.
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Oil could come in from Nigeria, the Americas, and Russia, avoiding the Strait of Hormuz in the Persian Gulf and Bab-al-Mandab which separates the Red Sea from the Arabian Sea. It would come along longer routes around the Cape of Good Hope at Africa’s southern tip, or across the Pacific. Oil prices have already risen, and added transportation costs would magnify the negative impact on India.
Geopolitical conflict boosts gold and US government bonds, as the US remains the strongest geopolitical pole. The rupee’s depreciation would add to import prices, feeding inflation.
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