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April 04, 2017 @ 01:15 PM

April 04, 2017 @ 01:15 PM

K. J. Somaiya Institute of Management Studies and Research, Mumbai

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Impact of Iraq war on us

Published : Monday, 30 June, 2014 12:44 PM 
 
MBA Aspirants are expected to know the happenings globally which might affect Indian foreign policy, thus impacting our relationship with other countries.
 
Read:  Impact of Iraq war on us
 
India and Iraq have always been traditional allies, Friendly ties between Ancient India and ancient Iraq (Mesopotamia) dates back to 1800 BCE. The friendly and collaborative ties had seen some setback around the time of the gulf war, but ties were normalized after 2003.
 
The recent civil war in Iraq   fought by ISIS on one side and the Iraqi government on the other side has brought unforeseen challenges to the new dispensation set up in the center.
 
Foreign Policy Challenge
 
The unexpected civil war caught the Indian citizens working in Iraq off guard. Many of them are stranded for want of conveyance and few of the citizens have been taken as hostages. The state governments of Tamil Nadu, Kerala, Punjab and many other states have written to the center seeking its intervention in providing a safe passage to the stranded people. 
 
The new government must open all channels; establish contact with the concerned governments (Iraqi as well as its neighbors), explore all avenues and ensure the safe arrival of the Indian citizens caught in the crossfire. India’s handling of the hostage crisis will reflect on its own foreign policy skills as India cannot be seen as taking sides between Shia’s and Sunnis.
 
The Economic Challenge
 
India imports crude oils from the Middle East and one of the chief suppliers of crude oil is Iraq. The crisis in Iraq will certainly set obstacles to India’s economic recovery from its recent bout with inflation. 
 
The Indian government has speculated that the crude oil price may increase to as high as $120 per barrel. The potential impact of this rise will supposedly cost Indian budget at least Rs.200 billion. Yes, if crude oil prices increase then the current account deficit will instantly see a spike too. 
  
 
Rise in cost of oil price will lead to increase in inflation subjecting the shaky economy to extreme stress. Once the crude oil price rises, so will the prices of the precious commodities like diesel and petrol, the  leap in  petrol and diesel prices will lead to an upsurge in transportation cost too, ultimately affecting the spending powers of common man.
 
The rupee which was reeling under inflationary pressure from a long time has weakened further; the stocks too have seen a downswing contracting the growing fears of Iraqi war backlash on the economy.
 
The current government has to tread carefully while taking measures to cap the inflation worries due to the impact of rising global crude oil prices. The government will have to modify some of its measures, including limiting the scope of tax incentives.
 
Despite this gloomy scenario, the RBI governor sounds upbeat about India’s ability to withstand Iraq’s Civil war crisis. According to him, India is better placed  vis a vis  of last year, the current deficit is low and that there is sufficient foreign exchange reserves to tide over the crisis at the  moment. 
 
Another reason to feel so buoyant is the fact that Iraq’s oil sector is largely unaffected by the ongoing civil crisis. India has also been proactive and has already geared up to import crude oil from other OPEC countries in case the war spreads to all parts of Iraq
 
Modi government appears prepared to tackle   both the foreign policy challenge as well as economical challenge by being proactive in getting the trapped citizens back as well as initiate reforms to put the economy back on the rails, thereby reducing the inflationary pressures on the common man.
 
 
 
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