The uncertainty around the US war with Iran continues. While Trump has declared a two-week ceasefire with Iran, the Strait of Hormuz still remains closed. And the Gulf rulers are on tenterhooks as to what Iran might do next. While Pakistan is making strenuous efforts to bring about a more permanent ceasefire, it is not at all clear how far the two protagonists will come together. Publicly, both sides are sticking to their demands. Vice President JD Vance declared the talks over the weekend as failed and headed home.
This, however, doesn’t mean the end of talks. More likely a breather before the next round. Pakistan is already planning trips to neighbouring countries, all of whose voices are also heard by the Trump administration. With a completely fluid and combustible situation, it is difficult to guess what steps Trump will take. At the same time, it is widely accepted that politically, Trump cannot carry on indefinitely. And he, too, needs an off-ramp at the earliest, keeping in mind the elections to Congress in November. He is also painfully aware that if the Democrats gain control of both houses, then his next two years will be a lame-duck presidency.
But in other ways, the picture is becoming clearer, and there will be no going back to the situation that existed before the American bombings began this year (and last year). To start with, there will be continued uncertainty about the resumption of full-scale oil and gas supplies from the Gulf. Several facilities have been damaged by Iranian attacks, some pretty badly, in Kuwait, Qatar and Bahrain in particular. And to a lesser extent in the UAE and Saudi Arabia. These facilities will take time and fair sums of money to repair. And Iranian facilities have also been badly hit, which will also take time, even if peace prevails, to get back to full capacity.
This has serious implications for India. To start with, there is the need for Gulf oil and gas at reasonable prices. Indian industry will have to develop a robust supply chain with alternate sources for petrochemicals, particularly fertilisers. And very importantly, there is the future of 9 million Indians working and living in the GCC countries, which includes Saudi Arabia. At the same time, Iran is crucial to India for access to Central Asia and beyond. Also, it is a country with which we have had historical links and trade for centuries. India cannot side with Iran against the GCC, nor can it be hostile to Iran. It will take all our diplomatic and political skills to walk this tightrope.
Having said this, many believe that we will be able to weather this storm, with a lesser longer-term impact on our economy. The government can control prices by cutting taxes and duties on oil and gas, which in any case are much too high. Our exports will be impacted by slower growth globally. But we are not an export-led economy. Domestic consumption, which is very low by any standards, will and must continue to rise. And our relatively low foreign debt and adequate reserves can withstand the stresses.
A last point worth noting is that while it is not clear how far the theocratic and repressive regime of the mullahs will change, it is clear that the Gulf regimes will have to rethink their longer regional relationships. The UAE and Saudi Arabia can no longer continue their ruinous struggles through their armed proxies in Yemen. And also, further away in Sudan and Libya. They will have to arrive at some non-hostile modus vivendi with Iran. They will also question the role of the US as their long-term guarantor. Also, while Netanyahu in Israel is currently riding high, with his reckless and genocidal attacks on Gaza and Iran, it will be ironic that the Israeli people, currently united in war, will be the first to bring about regime change by booting out Netanyahu.