With the Israel-Hamas war dragging on, the world wonders how big a crater it would cause on global geopolitics and the economy
India needs to be on its toes watching the Israel-Hamas conflict, which could do considerable harm given our huge exposure to West Asia. Resultant high oil prices would be bad for our economy. The current account deficit and inflation would surge. If global growth is impacted, our exports and investment inflows may suffer. The geopolitical instability may pose a threat to the security of our nine million-strong diaspora in West Asia, and raise questions about the India-Middle East-Europe Economic Corridor launched with great fanfare in September.

The Israel-Hamas war is now in its sixth week. Like the proverbial landlord, West Asians and much of the world, are currently in suspended animation wondering when and where the “second shoe” will drop and how big a crater it would cause on regional and global geopolitics and the economy.

While West Asia is no stranger to such shoe falls, several aspects of the current scrimmage are familiar, although some are new. We need to dwell on them briefly before making any prognosis of the crisis. It has been just over 50 years since the 19-day Yom Kippur War of 1973, 41 years since Israel invaded Lebanon in 1982 and 17 years since a 33-day inconclusive war between Hezbollah and Israel in 2006.

Israel was forced to leave Gaza in 2005, largely due to Palestinian resistance after a 38-year-long occupation. Since then, it has launched several military campaigns against Gaza: 2008 (lasting 22 days); 2012 (eight days); 2014 (50 days); and 2021 (11 days). Almost all Gaza conflicts involved Hamas firing rockets and the Israel Defense Forces making extensive air raids and missile attacks with occasional forays by armor-tipped infantry. Their ceasefires were always mediated by Egypt, the only Arab country that has a border with Gaza. Of late, Qatar has developed some proximity with Hamas and the Palestine Islamic Jihad (PIJ), a sister militancy in Gaza, through financial support and sheltering their leaders.

Landing a blow on Israel
Counting the differences, this ongoing conflict has proven to be far bloodier and more destructive than all its predecessors. It has already lasted longer than any — except the conflict in 2014. It has been the first time that Israel has suffered a major intelligence and security failure since 1973, denting its fabled impenetrable security and omniscient intelligence set-up. It has resulted in Israel suffering the largest number of war deaths and hostage-taking in a single day. Unlike previous instances of Israel fighting a non-state actor, this time it has had to contemplate the real possibility of a combination of Hamas, the PIJ, Hezbollah and the Houthis with Iran-allied Shia groups harassing the American military presence in Iraq and Syria in tandem. Further, following the “Abraham Accords” and recent progress towards normalization with Saudi Arabia, the regional geopolitics has shifted from an Arab-Israeli binary set-up to a more complex arrangement now. A prolonged and wider conflagration could risk a reversal of these hard-won diplomatic gains. In addition, it could draw in Iran which has become a more potent existential threat. At the same time, Israel’s abject failures on October 7 have dimmed its role as the possible anchor of a regional anti-Iran security alliance. While the Israel-Hamas conflict has hogged attention, other distractions such as the Ukraine-Russia war, China–United States frictions and global economic fragility are lurching around.

A re-enforcement of regional tenets
All these weighty new factors notwithstanding, the Israel-Hamas conflict has re-enforced some long-forgotten regional tenets. First, it has dramatically re-established the centrality of the “Palestine Cause”, demonstrating that 35 years of U.S.-sponsored peace-making has failed to bury it. An Israeli military solution at huge humanitarian costs could delay and complicate the situation, but may not take it to status quo ante October 6 2023. Second, the conflict has demonstrated that despite all talk of West Asia’s growing multipolarity, the U.S. remains the ultimate arbiter of the region’s security and stability. Third, thanks to its hydrocarbon assets, trade choke points and the existence of potent non-state terror actors, West Asia’s geo-economic importance remains undiminished. Even as West Asian events are often counter-intuitive, the Israel-Hamas war seems to be moving towards a denouement. Israel has gone for broke by besieging the major Gazan hospitals by alleging that Hamas uses them as human shields. It is a high-risk gambit: if the information is correct and the siege succeeds, Israel would achieve its twin objectives of breaking the back of Hamas and releasing the hostages. Otherwise, it would have to eat a humble pie at home and face a public relations disaster abroad.

For several reasons, Israel does not have time on its side after six weeks of tumult. According to an Israeli newspaper, even if war remains confined to Gaza, it could be financially ruinous, with cost estimates running to $51 billion, or a tenth of the national annual GDP. A rough Indian equivalence could be a war costing $350 billion. Israeli rulers are already on notice domestically, in abeyance due to the national crisis, for their various lapses. If the Gaza conflict goes awry or expands into a “forever” regional war, public support for the “national” government could easily evaporate. Israel’s iron fist pursuit of its war aims may be popular at home, but the serious collateral damage is a hard sell abroad, particularly to Arabs and Muslims. In recent days, the tide of global sympathy has perceptibly shifted away from the Israelis’ anguish after the October 7 outrage towards the suffering of the Gazan civilians. Most Arab regimes have no love lost for Hamas — long shunned by them as part of “political Islam” that could stir up the masses. However, by waging a protracted, no-holds-barred asymmetric conflict, Israel is pushing the Arab regimes towards Hamas, much to their chagrin. Arab regimes’ evident failure to prevent mass death and destruction in Gaza discredits them in the eyes of the putative Arab street. Thus, Israel’s single-minded pursuit of a military solution has a huge accompanying cost for the moderate Arab regimes — and they do not like it. Even the U.S., Tel Aviv’s ultimate protector, has gone beyond the usual “bad cop, good cop” routine and publicly distanced itself from Israel by calling for a “two-state” solution and “humanitarian pauses” in Gaza.

It is still too early to predict the eventual outcome of the conflict. In the worst-case scenario, it could be a Greek tragedy involving the killing of the hostages, conflict expanding to envelop first the non-state actors and, eventually, Iran. The World Bank predicted on October 31 that in the war’s worst-case scenario, oil prices could rise to $157 a barrel. Many Wall Street honchos foresee such eventuality upending the fragile post-COVID-19 pandemic economic recovery into a global recession. Further, Israel still seems to be thinking aloud about its exit strategy, abjuring the adage, “The longer you stay, the more chaotic the exit”. It appears to have no good options to extricate itself from the messy aftermath of October 7.

For India
India needs to be on its toes watching the Israel-Hamas conflict, which could do considerable harm given our huge exposure to West Asia. Resultant high oil prices would be bad for our economy. The current account deficit and inflation would surge. If global growth is impacted, our exports and investment inflows may suffer. The geopolitical instability may pose a threat to the security of our nine million-strong diaspora in West Asia, and raise questions about the India-Middle East-Europe Economic Corridor launched with great fanfare in September. With both Russia and Israel, India’s two most important defense suppliers, being currently mired in wars, our defense procurement may face uncertainty. A protracted conflict may also fan international terrorism. On the positive side, high oil income may raise prospects for higher investment and remittances from the Gulf countries. India would need to be careful to leverage putative job openings in Israel, lest it put its citizens in harm’s way. Besides, replacing Palestinian workers with Indians may further stereotype India. The conflict has already subjected Indian diplomacy to some inelegant shifts, although we quickly regained our traditional balance. All in all, New Delhi should keep its ear close to the ground and wait for the second shoe of the Gaza conflict to drop, hopefully, without any further seismic convulsions.
(The author is a former Indian ambassador and an Arabist)