US - Iran Relations: How Will The Killing Of Iran General Soleimani Impact India And Pakistan?

Analysts in India have warned the killing in Iraq of Iranian commander Qassem Soleimani by a U.S. airstrike could put a dent into India's economic recovery.

News of the killing sent crude oil futures spiraling as much as 4% -- and India is heavily dependent on foreign oil imports. Although India has relied less on Iranian oil due to U.S. sanctions, it is buying more crude from regional sources like Iraq and Saudi Arabia.

"If the tensions [between Iran and the U.S.] persist for a few months, the Indian economy may take a hit again as high crude oil prices will stoke inflation,” said G. Chokkalingam, founder of Equinomics Research & Advisory, a Mumbai advisory firm. “If Brent crude hits [the] $80 per barrel mark, inflation [in India] will begin rising and margins of corporations may be negatively affected."

Chokkalingam advised investors to remain cautious for a few weeks.

Narendra Solanki, the head of fundamental research at Anand Rathi Shares and Stock Brokers, warned of short-term negative fallout in India.

"Short-term traders can benefit from the volatility in the market even as we see no long-term impact,” he said. “I would advise investors to stay put in their investments and wait to see how Iran reacts to the situation.”

India's gross domestic product fell to 4.5% for the quarter ended September 2019.

Ajay Bodke, chief executive officer at Prabhudas Lilladher, a Mumbai stock brokerage, expects Iran to retaliate which would push up crude prices.

"Iran could strike either directly or through its numerous proxies in the region in countries like Iraq, Yemen, Syria, Lebanon, with an intention to cause massive damage to the U.S. and its allies in the Gulf like Saudi Arabia, [United Arab Emirates], Kuwait,” he said. “It may also aim at causing massive disruption of supply routes through the Persian Gulf or strike at key oil installations besides striking U.S. military and or civil interests in the Gulf and beyond.”

Bodke also said that safe haven assets including gold, Swiss Francs and Japanese Yen will rise in value in the near-term while emerging market currencies drop.

Yogesh Patil, senior research analyst at Reliance Securities, thinks Brent crude could reach $75 per barrel in the near-term if Iran retaliates,

However, other analysts think India will survive the current imbroglio unscathed, despite that fact that India imports about 20% of its oil from Iraq.

“Oil prices have remained stable despite many recent geopolitical tensions in west Asia,” said Kanwal Sibal, a former foreign secretary for the government of India. For example, he cited that after an attack on a Saudi Aramco oilfield last September that was blamed on Iran, oil prices spiked briefly then quickly settled down. Since that attack, oil prices have only risen marginally.

“The current supply of crude oil in the international market far exceeds demand,” Sibal noted.

V.K. Vijaykumar, chief investment strategist at Kochi-based Geojit Financial Services, said the latest airstrike was less serious than the September attack on Saudi Arabian oilfields.

“Given the huge imbalance in military might [between Iran and the U.S.], this is not likely to escalate into a full-blown conflict,” he said. “After an initial surge in hostilities, the situation is likely to normalize, pulling oil prices down.”

In the unlikely event of a war between the U.S. and Iran, India’s energy supply would be hurt, given that such a conflagration would involve the Strait of Hormuz through which much of the oil that India imports passes.

The destabilization of the Persian Gulf could also spell danger for the 7 million Indians living in the region. These Indian nationals account for about $40 billion of the $70 billion that India receives in annual foreign remittances.

India has trade deals valued at $78 billion with Gulf nations.

Interestingly, last year Soleimani chastised India’s biggest enemy Pakistan for not doing enough to fight terror.

In February 2019, a suicide bombing in southeastern Iran killed 27 members of Iran’s Islamic Revolutionary Guards Corps' Quds Force, which Soleimani led. The attack was reportedly perpetrated by Jaish al-Adl, a Sunni Muslim terror group that operates in both southern Iran's Sistan-Baluchestan province and in Pakistan.

"Are you, who have atomic bombs, unable to destroy a terrorist group with several hundred members in the region?" Soleimani asked the Pakistan government. "We have always offered Pakistan help in the region, but I have this question for the Pakistani government: Where are you heading to? You have caused unrest along borders with all your neighbors, and do you have any other neighbor left that you want to stir insecurity for? How many of your own people have been killed in different terrorist operations? We do not want your condolences. How could your condolence help the people of Iran?"

Soleimani ominously added: "I warn you not to test Iran [as] anyone who has tested Iran has received firm response.”

Pakistan denied Iran's accusation that it was protecting and harboring Jaish al-Adl.

Pakistan is a Sunni Muslim state while Iran is dominated by Shiite Muslims.

On Friday, after Soleimani’s death, Pakistan advised both the U.S. and Iran to “resolve issues through diplomatic means.”

Pakistan’s Foreign Office in Islamabad said it viewed the assassination "with deep concern" and that worsening tensions "seriously threaten peace and stability" in the Middle East. Pakistan also urged "respect for sovereignty and territorial integrity."

"It is also important to avoid unilateral actions and use of force,” the government added. "All parties are urged to exercise maximum restraint and resolve issues through diplomatic means.”

Last July, Pakistan’s Prime Minister Imran Khan warned of catastrophic results from ongoing U.S.-Iran tensions.

"You know, this is not going to be the same as Iraq; this could be much, much, much worse. It will have great consequences for Pakistan," he said.