Rating agency Crisil on Tuesday said the Israel – Gaza conflict has caused only negligible disruption in India's trade, while sectors such as fertiliser and diamond are expected to see 'manageable impact.' The agency said impact on the other sectors will be insignificant, but a spillover of the conflict into the other oil producing nations could lead to supply shocks jacking up of crude oil prices.

Continued war is likely to have a bearing on gold prices and oil prices though, the agency feels. "Since the conflict began in early October, gold prices have surged 13-15% to over ₹60,000 per 10 gm. Further sharp increases would materially dent affordability and growth of gold jewellery retailers. Their inventory-related borrowings could then rise, which can have some bearing on debt metrics," Crisil said in a release. After an initial spike in the crude oil prices post Gaza's rocket attack on Israel last month, the commodity has softened to $81 a barrel.

"Any spillover of the conflict to nearby oil producing and exporting regions could result in supply-related constraints and spiralling prices of crude oil. Within a week of the conflict, crude oil prices rose 4% to $90 per barrel but have stabilised a tad lower thereafter. A sharp rise in crude oil prices will impact linked sectors in India, such as aviation, automotives, paints, tyres, cement, chemicals, synthetic textiles and flexible packaging. Besides, higher inflation may lead to interest rates continuing to rule firm in India till the conflict de-escalates," it added.

According to the rating agency, the ongoing conflict in the Middle East, confined mainly to the Gaza region now, has caused only negligible disruption in India's trade so far. "Some sectors such as fertilisers and diamonds — both cut and polished — may see a slight, but manageable, impact, while for most others impact will be insignificant," Crisil said.

"But the conflict has driven up prices of gold and crude oil. Their trajectories will bear watching, especially crude oil, given India's high dependence on its import. Also, elevated crude oil prices have a cascading impact on a host of other sectors that consume the oil itself or linked raw materials," it added.

According to Crisil, the domestic trade with Israel is relatively low, accounting for 1.9% of total exports and 0.3% of total imports last fiscal. "The merchandise exports mainly comprise polished diamonds and petroleum products, including refined hydrocarbons, while imports largely comprise industrial equipment, fertilizers, rough diamonds and precious stones," Crisil said.

For domestic diamond polishers, Israel is primarily a trading hub, it claimed. “Exports to the country were 5% of total diamond exports from India last fiscal. Additionally, 2% of all roughs imported are from Israel. Polishers also have alternative trading hubs, such as Belgium and the United Arab Emirates, with ultimate customers based in the US and Europe,” it said.

Israel is a major global producer of muriate of potash (MoP) and among the top three countries that India imports from, accounting for 25% of all MoP imports last fiscal, according to the agency. "However, the share of MoP (as final product or as an ingredient in other fertilisers) remains low at 10% of domestic fertiliser consumption. Additionally, India’s ability to source from other countries lowers the supply risk," said Crisil.  

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