Expert Analysis of the Global Macro Events & News affecting the Indian Markets

WEEKLY SYNOPSIS

More than a thousand lives have been lost, a hundred girls have been abducted and millions of people are in a predicament, hoping to see the light of peace one day. All of this is happening in the name of what- Religion? Religion is one topic that people are fanatical yet scared to talk about. Just as clouds gather ominously before a thunderstorm, intensifying geopolitical tensions and conflicts cast a shadow over international relations. So, today, let’s talk about the economics of the war that has been around since ages and if acclaimed historians and economists are to be believed, could lead to the Third World War.

Before starting the discussion, let’s have a look at the map of Israel and Gaza. The history between the two regions dates back to a few centuries ago. It would not be possible for us to cover it from scratch but a few pointers will help you understand the timeline of previous wars. Let’s go.

• After World War I, Britain was entrusted to govern Palestine. Back then Palestine was characterised by Jewish minority and Arab majority.
• The objective of making Jewish homeland in Palestine escalated tensions between Jewish and Arab communities.
• In 1947, the United Nations proposed to divide the State of Palestine into separate Jewish and Arab states with Jerusalem under international administration. It’s interesting to note here that Jerusalem is pious for all three religions that are Islam, Christianity and Jews. 
• Declaration of a separate ‘State of Israel’ in 1948 is what has led to a series of conflicts that the world has been witnessing. The war turned into Arabs vs Israel.
• Hamas is a political and militant group in Gaza, established to fight against Israel’s annexation of surrounding areas.

This is just a brief outline to give you a broad idea on how the war has unfolded in the last 50 years. After a few peaceful months, the Hamas group fired 5000 missiles to Israel killing thousands. The State of War has been declared by Israel. Without discussing the history further lets quickly jump to economic impacts on the global economy, with special focus on India.

India and Israel- New Best Friends in the town?

• Until 1992, India had no relations with Israel. Though it was the second largest defence partner of our country, friendly relations did not take off until 2014. In 2017, PM Modi became the first prime minister to visit Israel.

• Defense- Israel is the 3rd largest defence partner of India after Russia and France. India is also the net exporter country to Israel. Exports increased substantially after Covid 19 (left chart)

• G20 Railway Corridor- Just last month, there was a wave of exhilaration when India- Middle east- Europe came together to announce a trade route that would escalate trade relations amongst the countries making trade faster and convinient. The route involves Haifa Airport of Israel. But the war could be a block to India’s ambitious plans. There’s anticipation that this could increase the insurance premiums and shipping costs

Btw, we recently covered the Railway Corridor and its economic impact in our newsletter.

Oil- A never ending problem of India

Oil, after reaching a high of $93 barrel per day, just started cooling off when the Israel-Palestine war broke out. It’s interesting to note that neither Israel nor does Gaza make much oil. Hence it all comes down to Iran. Iran and Hamas have been allies since very long. If Iran joins Hamas, the war will significantly escalate and the impact and spread might widen beyond the borders. Iran joining Hamas might result in other Arab countries also joining in to support Israel. As of 2021, Iran had the third largest oil reserves in the world (left chart). India’s position: India’s imports are negligible from Iran (right chart). But global oil prices would be impacted owing to supply disruptions and this could affect India, bad, really bad because oil is one thing India is not self reliant in. 

Tracking Global Cues

• The Israel-Hamas war has caused spooked equity markets, leading investors to shift towards safe-haven assets.
• US stock futures declined, and Asian markets traded lower on Monday, while safe-haven gold prices rose over 1%.
• Spot gold and US gold futures both climbed 1.2%.

What is up with Indian Markets?

• Adani Ports, which owns Haifa Port in Israel, saw a 5% decline in its shares on Monday.
• Tata Consultancy Services (TCS) has significant projects, including government contracts, in Israel, with over 1,000 employees closely monitored for their safety amid the conflict.
• Oil marketing companies (OMC) like Indian Oil Corporation (IOC), Hindustan Petroleum Corporation, and Bharat Petroleum Corporation Limited face potential crude oil supply disruptions from the Middle East due to escalated geopolitical tension.

Wars are devastating, irrespective of the cause that they are fought for. They leave an irreversible impact on the economy as well as human life. But from the market’s perspective, In the long run, much shall not happen unless other countries become a part of the war. Stances of Russia, US, Iran etc play a significant role. We hope they do not make hay while the sun shines because innocent lives are being lost. It’s unfortunate that so many wars keep going on around the world like this, Russia-Ukraine, and more, but it impacts the global markets and economy very little. As far as India’s position is concerned, it has to maintain its diplomatic stance because it can neither afford to lose on Oil nor it can do so with defence. Let’s see how things unfold in upcoming days.

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Green Portfolio is a SEBI Registered (SEBI Registration No. INH100008513) Research Analyst Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use.