India’s direct stake in a Taiwan crisis

Former British Prime Minister Harold Macmillan must (Opens in new window) be chuckling from above. Events in the Persian Gulf seem to have overtaken the current occupant of the White House with little warning. The Trump administration’s wobbly descent (Opens in new window) into the morass of the Middle East reminds one of the recurring brawl between the stubborn will of maverick politicians and the vicious grip of events. After a point, something has to give. Humans rarely triumph over history.

The second-round damage from the Iran war is not limited to fuel prices (Opens in new window) in Illinois and California, which are shooting up. The war has sent global energy, commodities, and food markets into a tailspin. The International Energy Agency has termed (Opens in new window) the crisis as the “largest supply disruption in the history of the global oil market.” Places as disparate as Juba in South Sudan to Lahore in Pakistan are facing electricity and energy shocks.

As a colossal energy importer, India has not escaped unscathed.

India imports around 90% of its crude oil and nearly 50% of its liquefied petroleum gas (LPG). Around half of its crude requirements and three-quarters of LPG pass through the Strait of Hormuz. Due to the twin shocks of its surging energy bill and persistent capital outflows, the Indian rupee is depreciating sharply. Some estimates (Opens in new window) suggest that these jolts will shave about 0.5% off India’s economic growth, which has been chugging along in the unsteady range of 6-7% in the last few quarters. Apart from broad metrics, India’s fertiliser industry – the backbone of agriculture – has also been hit, as urea production is closely tied to imported energy. The government’s chief economic advisor, V. Anantha Nageswaran, has acknowledged (Opens in new window) that this year’s balance-of-payments picture looks tenuous. The current account deficit is set to overspill, and inflationary winds are gathering.

If conflict near India’s western seaboard has unsettled the economy, what would be the impact if sparks flew across the eastern seaboard? What about a conflagration in the South and East China Seas?

A complacent view within one section of the Indian political and security class is that Taiwan is approximately 5,000 kilometres away from India. New Delhi’s role in any crisis would stop at pious press statements and posturing. This is a misreading of the stakes involved. As Vijay Gokhale, one of India’s former Foreign Secretaries and author of the newly published (Opens in new window) China’s Wars, recently said, “We are totally unprepared for a crisis in the Taiwan Strait.” He also argued that, if China imposes quarantine or blockade tactics around Taiwan, as the Iranians have used in the Strait of Hormuz, the Indian economy will suffer. Forget a brutal war, even aggressive grey-zone warfare by Beijing will puncture the region’s economic linkages.

Around 40% of India’s trade passes through the Malacca Straits. This economic to-and-fro will be the first casualty of any crisis. Critical imports of semiconductors, microprocessors, telecom, and medical equipment will be blocked. India’s service-sector-dominant economy will be in the doldrums. Moreover, Indian importers that depend on Chinese lithium-ion batteries, active pharmaceutical ingredients, complex chemicals, and electronic integrated circuits will face even more fragmented supply chains.

Another pressing challenge is coercive attacks on submarine cables. India has fifteen submarine cables connecting (Opens in new window) it to Silicon Valley. All of them are anchored near Taiwan. In the last two years, Beijing has cut three submarine cables (Opens in new window). It is not hard to guess how India’s IT services, e-commerce, e-logistics, and entertainment sectors will fare if such coercion continues unabated. Australian Defence Minister Richard Marles also raised (Opens in new window) the issue of attacks on submarine cables in a recent speech at the Shangri-La Dialogue in Singapore.

Apart from directly hurting the economic interests of regional states, conflict in the Taiwan Strait will also be a thunderbolt to the global economy. A 2022 study (Opens in new window) by the Rhodium Group found that a blockade of Taiwan would cost the global economy $2 trillion, without even accounting for second-round effects. In short, if China’s grey-zone activities in the South and East China Seas spiral beyond a threshold, a conflict with global ramifications is bound to ensue.

The scenario outlined above is a useful reminder for India. Taiwan is not a faraway island that New Delhi can choose to sidestep with homilies about neutrality. Its status as a node in the global technological geography makes it a critical component of India’s security.

To New Delhi’s credit, senior military functionaries have started (Opens in new window) outlining various crisis scenarios related to Taiwan. In August 2023, three former service chiefs of the Indian Air Force, Navy, and Army held closed-door meetings (Opens in new window) in Taipei under the aegis of the Ketagalan Forum, organised by the Taiwanese foreign office. Reports suggest (Opens in new window) that the visit was to establish informal communication channels between the two states' militaries, as well as to map out contingency planning.

As India’s economic stakes in the world develop, its security perimeter will grow accordingly. Without prior planning, New Delhi might be caught on the wrong side of events. Complacency will lead to tragedy.