Iran and U.S. : Middle East relief

Iran and U.S.

Iran and U.S. : As Iran and the US step back from the brink, what should India do?

In a development that has calmed markets and been greeted with relief by the international community, a line seems to have been drawn under the current round of military tensions between the US and Iran. After Iran fired 22 missiles at two Iraqi bases hosting US soldiers in retaliation for the American assassination of top Iranian general Qasim Suleimani in Baghdad last week, President Donald Trump claimed there was little damage to American assets from the attack. He said Iran appears to be standing down. Additionally, Trump said that he was going to impose new economic sanctions on Iran, marking a return to non-military options.

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For a while it had appeared that things would spiral out of control as Iranian anger at Suleimani assassination was palpable among the vast numbers of people who attended the general’s funeral processions in Iranian cities. Analysts are therefore giving credit to Iran for having responded with a “minimum damage, maximum warning effect” policy. There were no casualties and yet Tehran was able to send a message to regional countries that any escalation in hostilities would jeopardise the whole Middle East. The US appears to have taken the cue to de-escalate.

That said, the future is likely to see recurring tensions. Iran is now pushing for getting the US out of the region while Washington has sent in more troops. Plus, the matter of Iran-backed militias posing a challenge to the US and its regional allies remains, even as Tehran has scaled back its commitments to the 2015 Iran nuclear deal. It bears underlining how the recent round of hostilities had sent jitters through world markets, particularly because around 20% of the world’s oil consumption and 26% of LNG flow through the Strait of Hormuz.

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India, which imports more than 80% of its oil requirements, is particularly worried about another crisis brewing in the Middle East. GDP growth for this fiscal is forecast to be around 5%. Nominal GDP is expected to grow at 7.5% – which would be the worst performance in 42 years and really challenge the fiscal math. Lower tax revenues and higher oil prices would be a ghastly combination. While what happens in the Middle East may not be in New Delhi’s control, government must try to insulate the economy from external shocks by offering a big economic vision in the upcoming budget. That’s India’s lifejacket here.

Source : Times of India

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