Just a day before United States President George W. Bush delivered a fresh diatribe against Iraq in his State of the Union address, India’s Prime Minister Atal Behari Vajpayee did something unexpected. He appealed to the Great Powers to show "great restraint" and "patience" in dealing with Iraq and make "all efforts" to avoid a war and resolve the Iraq crisis through "negotiations". Without naming the United States, he said: "It is time the superpower showed some restraint and sought United Nations mediation to resolve the dispute."
Vajpayee also noted that a majority of European countries seem opposed to war on Iraq. Nothing should be done to disturb the delicate balance of forces in the Persian Gulf, he said, because war would "push up the prices of petroleum products", and India receives the bulk of its supply of these from that region. Most important, Vajpayee somewhat grandiloquently said: "India has always believed that war is no way to resolve disputes".
Vajpayee’s off-the-cuff remarks contrast with the generally wishy-washy position which India’s foreign ministry has outlined over the past few weeks on the issue of weapons inspections in Iraq. Its official statement limits itself to demanding that there should be no unilateral action against Iraq; authorisation for a military attack from the UN Security Council is imperative.
One can only hope that Vajpayee’s view is fully translated into a coherent and firm policy and that India will make a diplomatically adequate response to the new rift opening up between the US and Western European states, particularly Germany and France. It is in India’s national interest – and certainly in the interests of its people – that there is no war against Iraq, that the use of force does not get legitimised in world affairs, and that multilateral structures like the UN are defended against America’s aggressive unilateralism.
However, it is by no means certain that the Indian government, which is building a "strategic partnership" with the US, and is highly vulnerable to American pressure, will act in the national and international interest. A war on Iraq could also further complicate relations between India and Pakistan.
A war on Iraq will have extremely damaging economic and political effects on India, both directly and through the destabilisation of the Middle East and India’s immediate neighbourhood. The effects will be all the graver if the United States launches a protracted operation to effect a regime change in Baghdad. A convulsion in the Middle East will affect the 3 million-plus Indian workers who live in the Persian Gulf. The Indian government has very few defences against these adverse consequences.
Five categories of effects are relevant here:
- Direct macroeconomic effects, through increased prices of crude oil, India’s single biggest import item
- Effects on downstream industries and markets
- Indirect medium-term economic impact of the likely turbulence in the Middle East
- Political impact of an unstable Middle East in the event of prolonged US occupation of Iraq
- Strategic impact of the war on India-Pakistan rivalry – if Islamabad joins the war effort (which India is unlikely to)
Iraq is India’s biggest oil supplier and tops the list of its Persian Gulf petroleum sources, including Saudi Arabia, Iran and Kuwait. India depends on imports for 70 percent of its (rising) petroleum consumption. India has had good political relations with Iraq. In recent years, India, along with China, and to an extent Russia, took the lead in signing oil-for-food agreements with Iraq. India has long advocated abolition of such sanctions. India has provided (limited) food and medical assistance to Iraq.
Iraq in turn is one of the world’s few governments which broadly supports India’s stand on Kashmir. For decades, the two governments have had extensive trade and investment relations, including long-term oil supply agreements. Before 1991, some of these used to be routed through the former Soviet Union. Currently, there are complex barter as well as direct oil purchase agreements between India and Iraq. In 2000, Iraq leased two new oilfields to India’s Oil and Natural Gas Commission for further development.
Should there be a war against Iraq, India will be immediately affected through a choking of relatively steady and cheap oil supplies from Iraq, and a sharp rise in international crude prices, which are widely expected to spurt by up to $10 a barrel, from the present $30-32.
India’s oil import bill in the current year is running about 30 percent higher than last year. The latest political troubles in Venezuela have raised it further. The Indian government has ordered state-owned oil companies to top up their stocks to the equivalent of about 40 days’ requirements of petroleum products such as diesel, kerosene and petrol, and 15 days’ supply of crude. This is not a comfortable cushion.
India has no strategic oil reserves. Plans have been drawn up by Indian Oil Corporation (India’s only Fortune-500 company) to create three or four storage facilities in collaboration with a German company. But these have still to be approved by the government. The storages will take three and a half years to build.
High oil prices will not only raise the general cost-base of the Indian economy (in which petroleum consumption has been rising far more rapidly than GDP), but also erode the country’s currently high ($70 billion-plus) foreign exchange reserves. This is liable to create macroeconomic imbalances and aggravate the crisis of public finances and the state’s aggregate fiscal deficit. This deficit already exceeds 10 percent of GDP. Ultimately, macroeconomic imbalances will slow down growth. With a worsening fiscal deficit, the government will further lower its capital expenditure (an important booster of private sector growth), and cut back essential public services, raising unemployment and poverty ratios.
High crude oil prices will have a strong impact on a number of sectors: e.g. power generation (especially for agricultural irrigation), fertilisers and petrochemicals. Indian agriculture, especially foodgrains production, has just had a record bad year, thanks to a severe drought. High energy prices for irrigation pumpsets will cripple recovery, raise food prices and create social unrest.
If the US’s reported plans to bring about a full-scale "regime change" in Iraq and set up a model "Middle Eastern democracy" materialise, American troops are likely to remain in the region for 18 months or longer. The longer the US presence, the higher the chances of oil prices remaining at peak levels for long periods.
Politically and diplomatically, a strong unilateral push on Iraq by the US, which receives token support from (a reluctant?) UN Security Council will further weaken multilateralism and consensual decision-making in the world community. It will legitimise the use of military force as the preferred method of conflict resolution. This will harm global governance – to the detriment of, among other states, India.
War on Iraq will generate generalised turbulence in the Middle East, further inflaming the crisis in Israel-Palestine. Such turbulence, involving violence, will have a broad-based impact on the Gulf region, where 3.1 million Indian workers are located. Their annual remittances to India exceed all flows of foreign direct investment put together.
Whether and how far India can resist US pressure to "cooperate" with the war effort remains unclear. In the 1991 war, India originally refused to condemn Iraq’s invasion of Kuwait and to join the US-led war coalition. However, under pressure, India soon allowed US warplanes to refuel on its soil. Later, India also tried to win a share of the contracts for rebuilding Kuwait’s economy.
In the last war, India had to evacuate to safety hundreds of thousands of its nationals from the region, especially Kuwait, in what is said to be history’s biggest airlift. Currently, there are large numbers of Indians in especially vulnerable parts of the Gulf: 1.4 million in Saudi Arabia, a million in the UAE, and 350,000 in Kuwait.
In the event of a prolonged US occupation of Iraq, Washington is expected to break the back of OPEC. Should that happen, all the great oil producers of the Middle East would be badly affected. This will result in a general recession in the region, with joblessness – and lower remittances to India.
An Iraq war also spells upheavals in India’s immediate neighbourhood, especially in Iran, Pakistan and Afghanistan. It is likely to strengthen the forces of ethnic-religious fundamentalism and reinforce regional rivalries. Iran’s President Mohammad Khatami, on a recent visit to India, expressed that concern while opposing unilateral action against Iraq.
India is likely to stay neutral in the event of a US-led war on Iraq, but will qualify its position if there is strong multilateral support for military action, with a specific new UN resolution authorising the use of force.
The Pakistan government seems more inclined than earlier to join a US-led war coalition. Islamabad is under a fair amount of pressure to do so and may also want to support the US militarily. Its latest statement says a "heavy responsibility" rests on the shoulders of the Iraqi President, Saddam Hussein, to ensure implementation of UN resolutions. This runs contrary to the popular sentiment. There is growing unrest in Pakistan on a possible war on Iraq.
If Pakistan does join the US-led war effort, there will be a change in the triangular India-Pakistan-US relationship – in favour of Islamabad. As of now, both India and Pakistan feel frustrated that they cannot win adequate backing from Washington for their respective agendas to marginalise each other.
If Pakistan moves close to the US as a war ally, it will capitalise on that proximity to drive a hard bargain with India and adopt a tougher posture. This could create new tensions between the two nuclear rivals which have just witnessed a 10-months-long military standoff at the border and whose relations have plummeted to an all-time low.