Global leaders led by Indian Prime Minister Narendra Modi may have announced the India-Middle East-Europe Economic Corridor (IMEEC) with great pomp and hopes, but Hamas militants’ attack has effectively put a lid on the discussions, for now at least.
Monday saw markets echoing these fears.
Oil prices surged, appetite for gold returned, and Dalal Street tumbled as investors worried about what would come. Railway stocks including IRCON, Jupiter Wagons, RVNL and IRFC saw a fall of around 5-6 per cent each on fears that the war could impact India’s plan of building the IMEC.
Shares of Adani Ports, which owns Haifa Port in Israel, fell 5 per cent on Monday to the day’s low of Rs 794.15 on BSE. The company had earlier clarified that the overall contribution of Haifa in APSEZ’s numbers is around 3 per cent of the total cargo volume.
Shipping stocks were not spared either, as Shipping Corporation fell about 5 per cent on Monday.
Normalisation in the Middle East, delayed
The United States for some time has been working with Saudi Arabia and Israel in a bid to ring in the normalisation of ties. The US in 2020 brokered the Abraham Accords, which led to the normalisation of relations between Israel and both the United Arab Emirates and Bahrain.
Only in late September, an optimistic Israeli Prime Minister Benjamin Netanyahu informed the United Nations General Assembly that a historic breakthrough was not far away.
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“There’s no question the Abraham Accords heralded the dawn of a new age of peace. But I believe that we are at the cusp of an even more dramatic breakthrough, an historic peace between Israel and Saudi Arabia,” Netanyahu said. “Peace between Israel and Saudi Arabia will truly create a new Middle East.”
Saudi Crown Prince Mohammed bin Salman too noted the steady progress, telling Fox News, “every day we get closer.”
To this extent, the announcement of IMEC announced during the New Delhi G20 summit, brought great hopes as Saudi Arabia would get Western assistance to develop a rail network and obtain access to Israel’s Haifa port through Jordan. The plan was to link Middle Eastern countries by rail and to India through shipping lanes from ports in the region, extending on to Eastern Europe.
The rail link was to increase the speed of trade between India and Europe by 40 per cent, European Commission President Ursula von der Leyen had said in September during the summit.
US Deputy National Security Adviser Jonathan Finer earlier said that this initiative extends beyond mere infrastructure development. He emphasized that the broader goal of this strategy is to reduce tensions in a region that has traditionally been a major source of instability and insecurity, rather than a contributor to stability.
The route of the plan was slated to be announced around two months after the G20 summit. The rising geopolitical uncertainty means the hopes of normalisation may have been shortlived, at least for now.
India has rejected claims that the IMEC was an alternative to China’s Belt & Road Initiative even as US and the EU have sought to counter China’s initiative.
Hamas blow
US, Israel and Saudi Arabia’s hopes of establishing peace and normalcy in the Middle East as of October 10, 2023, look gloomy. The optimism displayed as late as September 2023 looks bleak.
Social media posts displayed gatherings of people holding Palestinian flags in countries like Lebanon, Bahrain, Kuwait, and others shortly after the Hamas militants’ attack.
Saudi Arabia did not condemn Hamas militants but took on Israel. The ministry said that it had issued multiple prior warnings saying Israel’s “occupation, the deprivation of the Palestinian people of their legitimate rights, and the repetition of systematic provocations” led to this moment.
The Saudi Press Agency reported that the Crown Prince told Palestinian President Mahmud Abbas the Gulf kingdom continued “to stand by the Palestinian people to achieve their legitimate rights to a decent life, achieve their hopes and aspirations, and achieve just and lasting peace.”
NYT on Tuesday reported that while Biden’s attempts to negotiate with Saudi’s Crown Prince and Netanyahu to achieve a complex three-way normalisation by the end of the year have now been delayed, US officials told the two countries that they are hopeful the discussions can continue. Yet, Saudi officials’ statement which did not condemn Hamas directly took Biden and fellow American lawmakers by surprise, and even angered some, the report said.
For India’s trade ambitions and global peace, a lot hinges on Israel’s response to Hamas militants’ attack in the coming weeks.
A blow to the Indian economy?
War is not good for any economy, no matter what the circumstances. In an increasingly interlinked world, any geopolitical conflict stands to affect the global economy. For India particularly, the IMEC would have benefited on different fronts.
India’s G20 Sherpa, Amitabh Kant, had told ET that it will be like “a plug-and-play project”, with a significant potential to unlock massive trade opportunities that were missing because of connectivity issues.
“For example, the IMEC has the potential to reduce trade time between the EU and India by 40%, which will be a significant boost in reducing energy costs and increasing trade,” Kant said. The IMEC would have acted as a green and digital bridge, linking key commercial hubs, enabling the production and export of clean energy, and expanding power grids and telecommunication networks.
Not only in terms of time, but the corridor would’ve also provided India cost advantage. The overall cost of sending goods to Europe would’ve likely dropped, Vinod Kaul, executive director of All India Rice Exporters Association had told ET.
