The instability in West Asia, particularly over Iran, is growing with the current standoff over its capture of British marines. The US has deployed its largest fleet of warships and submarines in the Persian Gulf, since the Iraq invasion, and warplanes are flying simulated attack games. This has raised concerns for oil security, resulting in a surge in oil prices by three percent as on 29 March 2007. Iran has the world's third largest oil reserves and second largest gas reserves, and currently exports around 2.5 million barrels per day (bbl/day) of oil. The geopolitics of energy is raising the conflict profile in West Asia and Iran. Given the current situation, how will Iran respond? What will be its implications for India's energy security given its heavy dependence on West Asian crude?

The strategic location of Iran is important here. It overlooks the Straits of Hormuz, the conduit for about 14 million bbl/day of oil, roughly two-fifths of globally traded oil. If Iran is attacked, will it retaliate by blocking the Straits of Hormuz? Perhaps not. Iran cannot afford to block this waterway for more than a couple of days as its economy depends on the outflow of oil and inflow of gasoline. At the same time, it might believe that a controlled crisis could boost its economy by driving up oil prices. If the crisis escalates and Iran is attacked, Iran may retaliate by launching a counter-attack on oil fields in Saudi Arabia, Kuwait, Iraq, and the United Arab Emirates, which together hold more than half the world's known oil reserves. Iran may also engage in sporadic, low-level attacks on Gulf shipping and oil production facilities. Iran possesses a number of Shehab ballistic missiles with a range of 300-500 kilometers. An Iranian counter missile strike could reach US bases in Qatar, Oman and Iraq. The Shehab III, which reportedly has a range of 1300 kms, could reach cities in Israel. Iran also possesses high-speed underwater missiles capable of destroying warships and submarines. Iran may open another front for the US, apart from Iraq, which would further destabilize the region.

If these events take place, it will have a multidimensional impact on India's energy supply and India's economy. India currently imports 67.43 percent of its energy requirements from West Asia, of which 10.03 percent is from Iran. India will have to suffer a crunch period, due to its heavy dependence on West Asian crude. Though the US and British navy are preparing to increase the number of minesweeping vessels and magnetic "sleds" carried by helicopters to improve their ability to counter Iranian mines in oil-shipping lanes, there is reason for India to be concerned. It still has no strategic oil reserves, and the proposal to establish such reserves is still in the initial stages of discussion.

In this scenario can India expect assistance from the US or China? Unlikely. China, itself imports 58 percent of its oil requirements from West Asia and is the leading oil and gas importer from Iran. The US, on the other hand, will not be in a position to help India in any way due to its active engagement in the conflict zone.

The possibility of a disruption in energy supply from Iran and West Asia and ensuing rising crude oil prices should be a cause of major concern for India. The rising crude oil prices may not immediately effect domestic inflation as the government regulates petroleum prices. This however, cannot be sustained for long, for if crude prices continue to rise, it would have a cascading effect on all aspects of the Indian economy. According to the Asian Development Bank, India's economy is headed for a slowdown at about 8 percent after growing at a brisk 9 percent rate over the last two years. With the threat of energy insecurity, it may decline still further. India registered a GDP growth of 8-9 percent on a credit growth of around 30 percent. The threat of energy crises may lower global investors' confidence in India resulting in a slowing down of Indian economy.

It is certainly in India's interest that this crisis does not escalate. Stability in West Asia is required and the US has a central role to play here. It is time for the US to realize the geopolitical reality of Iran being a regional power. Rash decisions on Iran will further deteriorate the situation impacting on the availability of oil from the Persian Gulf; the ramifications of which will also be felt in India.

Note: The views expressed herein are those of the author and do not in any way represent the views of TERI.