India Watches, Waits, and Withstands - Diplomatic Silence and the Economic Test of a Prolonged Gulf War
Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.
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By Linus Garg
First publised on 2026-04-01 03:25:50
About the Author
Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.
View all posts by this Author
The war in the Gulf shows no signs of abating. What began as yet another regional flare-up has hardened into a prolonged confrontation with global consequences. For India, the stakes are unusually high - strategic, diplomatic, and economic. Yet, amid this turbulence, New Delhi's response has been marked less by intervention and more by restraint.
This raises two pressing questions. First, why has Prime Minister Narendra Modi - widely seen as a credible global interlocutor - not stepped forward as a mediator? And second, how is India coping with the economic aftershocks, particularly the surge in energy prices and volatility in financial markets?
The Curious Case of Strategic Silence
Over the past decade, India has steadily built diplomatic capital across rival blocs. From strong ties with Israel to deep energy and diaspora links with Gulf nations, and a working relationship with Iran, India occupies a rare position of trust across fault lines. Prime Minister Modi himself has cultivated a reputation as a leader who can engage across ideological divides - something the current crisis sorely needs.
Yet, despite this positioning, India has not made any visible or assertive move toward mediation.
This is not due to lack of opportunity. Nor is it because India lacks leverage. Instead, it appears to be a deliberate choice rooted in caution. Mediation in a conflict of this scale is not merely about goodwill; it carries risks of failure, diplomatic backlash, and potential alienation of key partners.
Moreover, global power equations cannot be ignored. The Gulf conflict is not insulated - it is entangled with the interests of major powers. Any Indian attempt to broker peace would inevitably intersect with these interests, raising the cost of missteps.
Still, the absence of even a symbolic initiative - such as shuttle diplomacy or a multilateral call for de-escalation led by India - stands out. At a time when New Delhi seeks a larger global role, its reluctance to test its diplomatic weight invites scrutiny. Leadership on the world stage is not claimed; it is demonstrated, often in moments of crisis.
Economic Shock, Managed Impact
If diplomacy has been cautious, economics has been unforgiving. The most immediate impact of the Gulf war on India has come through energy prices. As one of the world's largest importers of crude oil, India remains acutely vulnerable to disruptions in the region.
The surge in oil prices has translated into higher import bills, pressure on the current account deficit, and inflationary risks. But the government took a hit on its finances by reducing excise duty on both petrol and diesel to ensure that pump prices were not raised. Industries dependent on fuel and consumers have been protected from the burden of rising costs.Shortages, especially of LPG, persist though.
Financial markets have mirrored this anxiety. The stock market has seen sharp corrections, driven by fears of prolonged instability, higher input costs, and global risk aversion. Foreign investors, typically quick to exit emerging markets during uncertainty, have added to the volatility.
And yet, the broader picture is not one of crisis - but of resilience.
India's macroeconomic buffers have played a crucial role. Foreign exchange reserves, while not limitless, provide a cushion against external shocks. The Reserve Bank of India has maintained a steady hand, avoiding panic-driven interventions while keeping liquidity and inflation expectations in check.
Equally important is the diversification of energy sourcing. India is no longer as dependent on a single region as it once was. Strategic reserves and calibrated procurement have softened the immediate blow, even if they cannot eliminate it.
Domestic demand, too, has held up. Unlike export-driven economies that are more vulnerable to global slowdowns, India's growth engine remains largely internal. This has helped absorb some of the external shocks.
In essence, India is hurting - but it is not destabilized.
A Test of Ambition
The Gulf war presents India with a dual test. On the diplomatic front, it challenges New Delhi to decide whether it is ready to transition from a balancing power to an active shaper of outcomes. On the economic front, it tests the robustness of reforms and the country's ability to withstand external shocks.
So far, the approach has been cautious abroad and calibrated at home. Whether this will be seen as prudence or passivity will depend on how the conflict evolves - and whether India eventually chooses to step forward.
For now, India watches, waits, and manages. But in a world increasingly defined by crises, there is a thin line between strategic patience and missed opportunity.
