Rising tensions in West Asia: Israel-Iran conflict and its global repercussions

West Asia, already a region defined by volatility and longstanding tensions, has once again been thrust into the international spotlight following the latest escalation in the Israel-Iran conflict.

On June 13, 2025, Israel launched Operation Rising Lion, a targeted military strike aimed at neutralising Iran's nuclear sites and weakening its regional military dominance.

The operation resulted in the deaths of several top Iranian military commanders, including General Mohammad Bagheri, General Hossein Salami, and General Amir Ali Hajizadeh—key figures overseeing Iran's armed forces, the Islamic Revolutionary Guard Corps (IRGC), and its ballistic missile program, respectively.

A new chapter in the Israel-Iran conflict

This military operation represents one of the most significant confrontations between Israel and Iran in decades. Prime Minister Benjamin Netanyahu justified the action as a necessary step to prevent Iran from acquiring nuclear weapons, which Israel views as an “existential threat”.

The timing of the strikes also follows a series of escalating tensions between Israel and Iran, particularly since the October 7, 2023, Hamas-led attack on Israel. Tehran’s support for militant proxies such as Hezbollah and Hamas has long been a thorn in Israel’s side.

Additionally, Iran lost an important ally in Syria with the fall of Bashar al-Assad’s regime in December 2024, further weakening its regional influence.

While Israel's actions have left Tehran reeling, it is uncertain whether the latest strikes will ignite widespread domestic unrest that could force a change in government. Although there have been some protests in Iran, they are primarily in response to Israeli aggression, rather than a direct challenge to the ruling regime.

The geopolitical repercussions in the region

Beyond the immediate consequences for Israel and Iran, the fallout from Operation Rising Lion is being felt throughout West Asia. Iran's nuclear ambitions have long been a source of anxiety for its Sunni Arab neighbours, who fear that a nuclear-capable Iran would lead to a regional arms race, with countries like Saudi Arabia likely to pursue their own nuclear weapons programmes.

The stakes are high, and Israel’s strike has eased some of these concerns by weakening Iran’s nuclear capabilities, at least for the time being.

However, the immediate reaction in the Gulf has been one of condemnation. Countries like Saudi Arabia, the UAE, and Oman have voiced opposition to Israel’s actions, leaving them in a precarious position.

On one hand, Iran and its proxy forces have been a challenge to regional stability, but on the other, Iran has also acted as a counterbalance to Israel’s military dominance in the region. With Israel’s growing influence and a potential shift in US policy under President Donald Trump, the Gulf states are now forced to reconsider their relationships with both Israel and Iran.

Former Indian diplomat Mahesh Sachdev notes that the Sunni Arab world harbours little affection for either Israel or Iran. A stronger, more assertive Israel could potentially force Gulf states to normalise ties with the Jewish state under the framework of the 2020 Abraham Accords, a peace agreement that had already begun to reshape the regional diplomatic landscape.

India, which has strong ties with both Israel and Iran, finds itself in a delicate position as it watches the unfolding events with cautious attention.

India's delicate balancing act

India has historically treaded carefully when it comes to West Asia, largely due to its complex relations with both Israel and Iran.

On one hand, India shares “civilisational ties” with Iran, and the two countries have had a longstanding partnership on matters of energy, trade, and regional connectivity. Iran has also been an important energy partner for India, although the country ceased importing oil from Iran under US sanctions imposed during the Trump administration.

On the other hand, India has been a steadfast partner of Israel, particularly since formal diplomatic ties were established in 1992. The relationship has flourished across various sectors, including defence, agriculture, and technology.

Israel has been a key supplier of advanced military equipment to India, including drones and missiles, which have been used in operations against Pakistan, particularly during the 2019 Operation Sindoor.

India's position on the Iran-Israel conflict is shaped not only by its strong bilateral ties with both nations but also by the need to safeguard its interests in the wider Gulf region. Approximately 9 million Indians live and work in the Gulf states, making the safety and security of the expatriate community a priority. Furthermore, the region plays a vital role in India's energy supply, particularly in terms of oil and natural gas.

India’s foreign policy is aligned closely with the Gulf states’ concerns about Iran, especially as Tehran has continued to exert its influence through proxy groups in Lebanon (Hezbollah), Syria, and Iraq.

The recent escalation has only deepened India’s commitment to its strategic relationship with Israel, despite the Gulf states’ condemnation of Israel’s actions.

The IMEC and its delays

India’s ambitions for regional connectivity are heavily tied to the India-Middle East-Europe Economic Corridor (IMEC), which was announced in 2023.

The project, which seeks to connect South Asia, West Asia, and Europe through a comprehensive network of transport, renewable energy, and digital infrastructure, is seen as a game-changer for India’s trade and economic prospects.

The IMEC project was born out of the vision for peace and cooperation in the region following the Abraham Accords and the creation of the Israel-India-US-UAE (I2U2) grouping.

However, the current crisis has cast a shadow over the project’s implementation. The ongoing conflict has created additional uncertainty, delaying key infrastructure developments and complicating logistics in the region.

Shipping routes through the Red Sea and the Suez Canal, critical for global trade, have been disrupted by ongoing threats from Iranian-backed Houthi rebels, forcing many ships to take longer routes and incur higher costs.

Although the IMEC project remains a priority for India, the new geopolitical risks introduced by Israel’s strikes on Iran may cause delays and potentially force a reevaluation of its timeline.

Oil, trade, and markets

The Israel-Iran conflict has already had a significant impact on global markets, particularly oil prices. As tensions rose, Brent crude oil prices surged by 7 per cent, hitting $75 per barrel, with analysts predicting a potential spike above $100 per barrel if the conflict escalates further.

The surge in oil prices has ripple effects across the global economy, as higher energy costs lead to increased prices for everything from consumer goods to air travel.

West Asia is a major hub for global oil production and maritime trade, and any disruption to shipping routes, particularly in the Strait of Hormuz (which handles a quarter of the world’s oil trade), could have far-reaching consequences.

Iran had recently threatened to block the strait, and although this remains unlikely, analysts are monitoring the situation closely.

Rising oil prices are also expected to increase shipping insurance premiums, which will ultimately be passed on to consumers.

The International Monetary Fund (IMF) has warned that every 10 per cent increase in oil prices could raise inflation in advanced economies by 0.4 percentage points, adding to the financial strain on consumers and businesses.

The disruptions in maritime trade are already being felt, as the Houthi rebels’ attacks have forced many vessels to take longer routes, increasing travel times and costs.

This not only delays shipments but also affects global supply chains, which are already fragile due to other geopolitical factors such as the ongoing war in Ukraine.

The sudden escalation also rattled the markets around the world, with the S&P 500 falling 1.1 per cent, the Dow Jones Industrial Average dropping 1.8 per cent, and European and Asian indices mirroring these declines. Volatility spiked as the VIX—often called the market’s “fear gauge”—surged past the critical 20-point anxiety threshold.

Investors also flocked to safe-haven assets such as gold and the US dollar, which typically perform well during crises. Spot gold was up 0.38 per cent, while gold futures for August delivery gained 0.41 per cent, following respective June 13 increases of 1.4 per cent and 1.5 per cent.

The US dollar index climbed 0.3 per cent on June 13 and was up another 0.1 per cent by June 16 morning, outperforming other traditional safe currencies like the Swiss franc and Japanese yen.

The escalation of the Israel-Iran conflict has triggered a volatile mix of geopolitical, economic, and energy market concerns. The ongoing uncertainty in the region is a significant source of risk for global trade and oil markets and could further complicate India's strategic initiatives in West Asia, including the IMEC project.

India's ability to navigate this complex situation, balancing its interests with Israel and Iran while safeguarding its goals, will be crucial in shaping the future of West Asia and South Asia's economic landscape.

The road ahead remains fraught with challenges, but it is clear that the geopolitical dynamics of this conflict will continue to reverberate across the global economy for the foreseeable future.