India-Pakistan War Impact on International Trade
Disruptions to Direct Bilateral Trade
Trade Suspension:
The India-Pakistan war impact in international trade, including essential imports like cotton, has been completely halted.
This has a direct impact on border economies and Indian textile industries, particularly in Punjab, where the closure of the Attari-Wagah Integrated Check Post has led to significant job and income losses.
Declining Trade Volumes:
Prior to the most recent conflict, trade between India and Pakistan had already drastically decreased over the previous ten years, with India importing very little from Pakistan.
Official trade has essentially stopped due to the most recent war.
Effects of Regional and Global Supply Chains
Airspace Restrictions and Border Closures:
The conflict has resulted in airspace restrictions and border closures, which have made logistics considerably more costly and unpredictable.
To avoid Pakistani airspace, international flights have been rerouted, which has resulted in delays and longer travel times.
Supply Chain Disruptions:
India is becoming a major global supply hub, and Pakistan and India are both important players in South Asian logistics.
Disruptions in their connectivity (land, sea, and air) impact trade flows to Central Asia, the Middle East, and Europe.
Regional supply chains have been suffocated by both countries’ border closures and increased trade restrictions.
Impact on Afghanistan:
Afghanistan has encountered many difficulties because it depends on trade routes via Pakistan to reach Indian markets.
Afghanistan has been forced to seek alternatives, such as Iran’s Chabahar port, despite its limited capacity, as a result of the conflict’s threat to its imports and exports.
Economic and Sectoral Consequences
Energy and Commodity Markets:
The fighting has put regional shipping lanes and energy routes in jeopardy, which has raised insurance rates and possibly raised oil prices.
Any increase could lead to inflationary pressures because of India’s reliance on oil imports.
Market Volatility and Investment:
Investor concerns have caused declines in Indian equity markets.
The rupee has weakened, and investor confidence has been undermined by the slowdown in foreign portfolio investment inflows.
Extended hostilities may discourage foreign investment and interfere with infrastructure development.
Costs of Shipping and Freight:
For cargo going to or passing through the area, higher risks have resulted in higher freight and insurance costs.
Another possibility is sanctions, which would further complicate shipping and trade agreements.
Effects on Third Parties and Geopolitics
China’s Strategic Loss:
Because Chinese-made weapons did not perform well in Pakistan’s defence, the conflict has hurt China’s standing as a trustworthy arms supplier.
Since Pakistan is China’s biggest customer, this has caused a drop in Chinese defence stocks, which may have an effect on China’s aspirations to export weapons worldwide.
Alliances and Trade Realignment:
The conflict may cause regional supply chains and trade partnerships to shift, as China and Turkey back Pakistan while India aims to diplomatically isolate it.
Finding new markets may be necessary for both buyers and sellers, particularly for Pakistani exports.
Possibility of Wider Economic Repercussions
Risk of Wider Escalation:
Should the conflict worsen, it may endanger vital chokepoints such as the Strait of Hormuz, affecting the world’s oil supply and shipping lanes from the Middle East, which could have an effect on international trade and commodity prices.
Long-Term Trade Pattern Shifts:
New geopolitical and economic dynamics may result from the need to eventually source commodities supplied by India and Pakistan from other sources and from the permanent alteration of trade routes.
This situation is causing global markets to become unstable. Rising tensions put important shipping routes like the Strait of Hormuz, which carries a large portion of the world’s oil, at risk. If these routes are disrupted, it can lead to higher oil prices and impact economies worldwide.
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