Finance & Economy | News & Insights

Middle East Conflict May Pose Slight Setback for Fertilisers and Diamonds: Crisil

Published: November 10, 2023

The recent conflict in the Middle East has raised concerns over its potential impact on various sectors of India’s economy. Crisil, a prominent domestic credit ratings agency, recently released a note shedding light on this matter. According to Crisil, while the conflict has caused only a negligible disruption in India’s overall trade, certain sectors, such as fertilisers and diamonds, may experience slight repercussions. However, the agency emphasizes that the impact on most sectors will be insignificant. Though the conflict has pushed up gold and crude oil prices, the agency advises close monitoring of these developments. Crude oil prices are particularly crucial for India due to its heavy dependence on imports. A rise in crude oil prices can have far-reaching consequences, affecting various sectors that rely on oil or its related raw materials.

Impact on Diamonds and Fertilisers:

Within the Indian diamond industry, the conflict’s influence is primarily observed in the trading relationship with Israel. India’s exports to Israel accounted for 5% of the total diamond exports last fiscal year. Additionally, around 2% of rough diamonds imported by India come from Israel. Despite these figures, the overall impact on the diamond sector is expected to be manageable.

Regarding fertilisers, Israel plays a significant role as a major global producer of muriate of potash (MoP). India imports a substantial portion of its MoP requirements from Israel, with last fiscal year seeing one-fourth of all MoP imports originating from the country. However, the share of MoP in domestic fertiliser consumption remains relatively low at 10%. Moreover, India’s ability to source fertilisers from other countries helps mitigate supply risks.

Gold and Crude Oil Price Dynamics:

The ongoing conflict has led to notable price surges in gold and crude oil, which demand careful monitoring. Gold prices have risen by around 13-15% since the conflict’s onset, surpassing Rs 60,000 per 10 grams. The agency warns that further sharp increases could profoundly impact the affordability and growth of gold jewellery retailers within India.

India’s heavy reliance on crude oil imports requires a close examination of price movements. Elevated crude oil prices can have cascading effects on various sectors that either consume oil or rely on related raw materials. The agency underscores the importance of monitoring crude oil prices due to their broad economic ramifications.

Trade Relationship with Israel:

India’s trade with Israel represents a small fraction of its overall commerce. In the fiscal year 2022-23, Israel accounted for a mere 1.9% of India’s exports and 0.3% of its imports. Major merchandise exports to Israel comprise polished diamonds and petroleum products, including refined hydrocarbons. Imports mainly consist of industrial equipment, fertilisers, rough diamonds, and precious stones. While Israel serves as a trading hub for domestic diamond polishers, the country’s significance in the overall scheme of India’s diamond trade remains limited.

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