Syria Crisis and Implications for India

By Dr. Shakti Prasad Srichandan

In the backdrop of the alleged use of chemical weapons by Syrian authorities against its own civilian population, a U.S.-led armed intervention in Syria, if it ever materializes, will have regional and global implications. What concerns India most is the likely impact of the crisis on oil supply, which will have massive impact on its economy at a time of rupee free fall and pessimism about growth. Though Syria is not a major oil producer, its strategic location overlooking Suez-Mediterranean supply routes could have destabilizing consequences for other oil exporting countries of the region and eventually lead to steep rise in international crude oil prices.

India has every reason to be concerned because its vital interests in the region not only encompass the safety and security of an approximately five million strong diaspora but also the fact that, this region alone meets two thirds of its crude oil demands. Of late, this region has become a destination for Indian investment and joint ventures. Some of the regional powers like the UAE, Saudi Arabia have now become top trading partner of India.

India has no particular affection for Bashar al-Assad regime of Syria. With regards to the Syria crisis, it invokes its principled position that resolution of the internal problems should come from inside rather than by external intervention. Indo-Syrian relations lack warmth except the fact that Syria has been supportive of India’s stand on Kashmir and aspirations for a permanent seat at U.N. Security Council. India has been looked upon as a possible player to defuse the tension in West Asia by Syria along with other stakeholders like Russia and Iran. India’s balanced stand during NAM Summit at Tehran was highly appreciated across board. At the U.N., especially during its stint as a non-permanent member, it had initially opposed tough sanctions against Syria. But later, it joined the chorus in condemning Syria for its human rights violations. In the recently concluded G-20 Summit at St. Petersburg, India reminded others about the wrongs done during the Iraq War, which needs to be avoided in case of Syria. India has appealed supporters of military action to wait till the U.N.-led investigation concludes its findings on use of chemical weapons. If Syria is found guilty, then any action should have the mandate of UNSC rather than a unilateral intervention as contemplated by the U..S along with its European allies like U.K. and France.

In view of the snowballing crisis in the region, price of per barrel of oil has reached a six month high and is now being traded around $120 a barrel. In the days to come, it may skyrocket if appropriate measures are not taken by OPEC. India is a net importer of 78 percent of its oil needs, and it pays its oil bills in U.S. dollars, which constitute around 32 percent of the total import bill. Any further increase in oil prices will drain its dollar reserves and further weaken the rupee, thereby having a cascading effect on the whole economy. What complicates the matter is that India already has a ballooning Current Account Deficit (CAD) to the tune of 4.5 percent of GDP mainly due to import of crude oil and gold. Though the government and its various agencies are in a “fire fighting” mode to contain the deficit, the worsening global economic scenario and the Syria crisis are adding fuel to the fire. It is widely anticipated that the U.S. Federal Reserve will scale back its monetary stimulus, which, in turn, would lead to flight of much needed capital from developing countries like India further putting pressure on India rupee. The rupee had already reached a record low of 68.66 against the dollar, putting the economy in ICU, although it has recovered a little in the last few days. In such a backdrop, the Syrian crisis will further bleed the India economy. It is speculated in various reports that if the latest standoff worsens, Brent prices may touch $150 per barrel. If this really happens, it would increase domestic oil prices and lead to revival of inflation.

It is very important for India to strive for a peaceful resolution of Syria crisis along with countries like Russia, China. The U.N. window is still open for making Assad accountable if his regime has really committed mass murder by using chemical weapons. The latest peace deal for Syria by the U.S. and Russia is an encouraging development. In case military intervention takes place in future, India’s interest lies in the conflict remaining localized without engulfing the whole region. In view of the uncertainties that lie ahead, India must explore other avenues for import of crude oil. Even Iran is a safe option. Some reports suggest that Iran has already committed to meet Indian needs with due concurrence of the U.S. Though it sounds like a temporary measure, its beneficial effect can not be underestimated, considering that India pays Iran in Indian rupees, which will save foreign exchange in these days of economic difficulties. It is unlikely that the situation will lead to a mass exodus of the Indian diaspora from the region, but that does not mean India should lower its level of preparation for any such eventuality.

Dr. Shakti Prasad Srichandan works with Government of India. Views expressed here are his own.