The Impact of the Gulf War on the Indian Economy

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From India’s oil import bills swelling to investors backing out, the country took a serious economic setback due to the Gulf War. In this episode, we will explore how the Indian economy was hit due to the Gulf War.

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By the end of the 1980s, India was facing economic brunt due to a trade deficit, which resulted in an external payment crisis.

Much of India’s oil comes from the Gulf region, so it is not difficult to see why India became concerned as soon as the Gulf War began. While the V.P. Singh government managed to evacuate Indians from Iraq and Kuwait, the Indian administration could not to stop the serious economic impact of the Gulf War.

Although Iraq’s seizure of Kuwait was unjustified on several counts, India was Iraq’s friend, which further complicated the matter. Iraq had always sided with India on various political issues, such as the Indo-Pakistan dispute over Kashmir.

While it is true that India was facing an economic crisis ahead of the Gulf War, things worsened as soon as the Iraq-Kuwait conflict began. The trade deficit took a significant blow because India relied on the Gulf nations for crude oil. The unimaginable surge in crude oil prices added fuel to the fire because it completely imbalanced the nation’s balance of payments.

An article published on MERIP, titled “The Gulf War and India,” mentions the following:

“Until the outbreak of the war, concern seldom translated into marked partisanship for any side. Iraq’s seizure of Kuwait was generally felt to be unjustified, and economic sanctions on the whole legitimate. But Iraq had been a friend, supportive — unlike Saudi Arabia — even on the endemic Indo-Pakistani dispute over Kashmir. Among the politically aware, there was also a sense of double standards in the context of the Palestine issue, numerous examples of US aggression and decades of Western soft-pedaling on South Africa.”

The Gulf War also took its toll on other developing countries of the world. The high oil prices saw many developing nations’ growth being adversely affected.  From August 1990 to January 1991 the cost of one barrel was $30—almost double of what was expected.

The 1991 MERIP article mentions:

“The Gulf war, first fruit of a world for the moment turned unipolar by the crisis in international socialism, confronts decent people everywhere, and particularly Third World countries, with new threats, difficult choices and responsibilities. The temptation to seek short-term, maybe even personal or factional gains by falling in with an apparently all-powerful US will be considerable. Refueling a few US planes at Bombay could not have had much military significance. The US just wanted to make clear who is master, and the most unscrupulous section of the Indian ruling elite succumbed without a whimper…”

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