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Would India Middle East Economic Corridor survive the Israel-Hamas conflict?

The Israel-Hamas war may challenge execution of the IMEC corridor

On October 17, while speaking at the 3rd Global Maritime India Summit (GIMS), Prime Minister Modi reiterated the capacity of India for forging a historical consensus at G20 through unveiling of the India Middle East Economic Corridor (IMEC). Calling it a ‘catalyst for prosperity’ and a rejuvenation of the ‘old Silk Route’, Prime Minister launched the ‘Amrit Kal Vision 2024’ – a roadmap for India’s maritime blue economy.

He further elucidated that IMEC would entail several new possibilities – creation and expansion of multimodal hubs, inland waterways, island development, mega ports as well as international container trans-shipment ports. The timing of Prime Minister’s run aground address on Tuesday coincided with China convening the tenth anniversary of Third Belt and Road Forum for International Cooperation, with the presence of 4,000 world dignitaries and Russian President Vladimir Putin receiving a red carpet welcome.

When the grandiose multi-billion project of IMEC was unveiled on September 8 – at the sideline of India’s G20 Presidency– it was perceived primarily as United States’ and India’s competitive bid against China’s Belt and Road Initiative (BRI), along with an attempt to symbolically integrate Israel within the West Asian economy and Gulf region. The Arab-Israeli normalization or the Abraham Accords – mediated by the White House in 2020 – had established diplomatic relations of Israel with UAE, Bahrain, Morocco and Sudan, even at the cost of ignoring the Palestinian question. The feasibility and longevity of these bilateral relations, along with the future prospects of IMEC are now challenged with the ongoing Israel-Hamas conflict, as the status-quo in the region has changed drastically after October 7 Hamas-led attack in Israel. Any form of much-talked about negotiation between Israel and Saudi Arabia, on the lines of Abraham Accords, seems untenable, especially at the cost of ‘Palestinian Question.’

The spillage of Israel-Hamas Conflict on Haifa Port

Gautam Adani-led Adani Ports and SEZ Limited along with Israel’s Gadot Group, that had acquired Israel’s Haifa port earlier this year for $1.2 billion dollars, faced a sudden drop in their shares on October 16. As Tel Aviv is immersed in ground assault at the Gaza strip, the growing backlog of cargo and ships at Haifa port has increased. Several investors are also concerned if Iran would be dragged into the war, which would also jeopardise the ongoing trade in Strait of Hormuz – as it accounts for 35 per cent of the global oil and gas trade.

In an effort to quell the fears of investors, the company issued a media statement, reading “We have taken measures to ensure safety of our employees and all of them are safe. We remain fully alert and prepared with a business continuity plan that will enable us to respond effectively to any eventuality.” Meanwhile, the Republic of the Marshall Islands (RMI) in its ship security advisory has raised the security level for Israeli ports to the highest. The threat of collateral damage to merchant vessels has been raised in Arabian Gulf, Red Sea, Strait of Hormuz and Gulf of Oman.

At the same time, it should be noted that a privately owned port at Haifa Bay – located a few kilometres away from Haifa port – is controlled by China’s Shanghai International Port Group under a 25-year contract. This technologically-sophisticated, 5G enhanced and completely automated port could be challenge to India’s investment in Haifa port. Yet, Beijing, too, is suffering after its ‘balanced’ diplomatic stance in the ongoing conflict. It has called Hamas as a “Palestine Resistance Movement’ instead of a terrorist organisation, therefore upsetting the White House and Tel Aviv.

“Uncertainty was still high in domestic market despite improved economic data, facing the double whammy of US employment data (driving up interest rates) and Middle East risks,” said Xu Wenyu, an analyst at Huatai Futures to Asia Financial. On October 10, the slumping of CSI One Belt & Road Initiative shares by 2% had sent jitters in the stock markets. 8.5% slump was recorded for state-owned China Communications Construction, which had invested $3 billion in West Asia in the past three years. But China’s Aerospace CH UAV Company, that sells drones, registered a growth of 6%. But the tremors felt in the Shenzhen and Shanghai stock exchanges cannot be over-ruled, especially those dealing with oil and fertiliser as well as infra-structure related companies. Meanwhile, predicting a forthcoming global recession, Bloomberg Economics has estimated that the oil prices could soar to $150 a barrel and the global growth drop to 1.7%. This recession could take about $1 trillion off from world output.

India’s manoeuvring of IMEC amidst the conflict

“The India-Middle East-Europe corridor can complicate regional geopolitics if it involves Israel,” Professor Ahmet Uysal, the Director of Middle Eastern Studies Center (ORSAM) in Ankara, had predicted recently.

“It may bring together the countries that are excluded from the project such as Oman, Iraq, Turkey and Egypt. Of course, China will not stay hands tied with a lot of resources and its current advancement in the race. The new trade corridor also has several black spots. One, the competitive power of India is no match with China that has 5 times bigger GDP in 2022. Secondly, who will fund this major project as India do not have enough resources to fund this project like China. Currently the USA and Europeans devoted most of their resources to the Ukraine war. Therefore, they will not be very eager to fund it as indirect benefactors of the project. The alternative source of funding would be the Gulf states, especially Saudi Arabia and UAE,” he further added.

“IMEC was predicated on the smooth sailing across the whole route especially through the Middle East. With this Israel-Hamas war, Riyadh has been confronted with the stark reality of the Palestinian issue which has put brakes at least in the short run. Most Arab countries won’t be able to defy their street. From India’s perspective, the maritime routes are already operating but any escalation of conflict will impact India significantly, let alone the IMEC, which in any case will take a while to materialize,” said retired Ambassador Anil Trigunayat, who has served in Indian missions in Cote d’Ivoire, Bangladesh, Mongolia, USA, Russia, Sweden and Nigeria, Libya and Jordan.

In his recent piece in Indian Express, Business Editor Anil Sasi pointed out that “in New Delhi, across some key infrastructure ministries, there is an acknowledgement that the project – spearheaded by the US – was perhaps announced prematurely, well before any implementation details were finalised, or communicated at a country level. Official timelines for the project’s completion or details on how it would be funded are not clearly spelt out yet. Clarity on the final alignment of the project is also awaited.”

“The promising elements of IMEC notwithstanding, the corridor leaves out several critical regional players, such as Egypt, Turkey, and Iran. Some concerns operating the IMEC may adversely affect the Suez Canal. Erdogan has already said there is no corridor without Turkey. That said, if complementary factors are prioritized over competing factors, this corridor, once it becomes operational, has a lot to offer to all stakeholders. As of now, BRI is the only game in town,” said Ehtesham Shahid, Editor at Emirates Policy Center.

Castle in the Air or a Dare to Dream?

During US President Joe Biden’s recent visit to Israel and meeting with Prime Minister Benjamin Netanyahu, he assured his support for Israel and stated, “I don’t believe you have to be a Jew to be a Zionist, and I am a Zionist.” At the same time, his close alignment with right-wing leaders might stir the pot, cause disillusionment and alienation of some progressive leaders in the Democratic Party. As he seeks re-election in 2024 US Presidential Elections, his image in the Arab world as a neutral interlocutor now stands questionable.

Meanwhile, Biden did stress on innovative projects like IMEC which aim at connecting the countries of West Asia and bringing a better future. The administration has submitted a proposal of $106 billion dollars request to Congress for military and humanitarian ‘aid’ to Israel and Ukraine as well as humanitarian ‘assistance’ to Gaza.

Also Read: India’s out-of-the-box IMEC initiative will need audacity and much more to achieve results