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The escalating tensions between Israel and Iran, despite ceasefire announcements, are casting a long shadow over India's substantial trade ties with the Middle East, particularly the Gulf Cooperation Council (GCC) countries, Iran, and Israel. The ongoing exchange of missiles and the threat of further escalation, including the potential closure of the Strait of Hormuz, have created a climate of uncertainty for Indian traders and businesses operating in the region. This uncertainty is manifesting in increased freight costs, shipping delays, and heightened insurance premiums, all of which threaten to disrupt supply chains and impact the Indian economy. The situation is further complicated by the fact that war and war-related damages are typically not covered by insurance policies, leaving traders vulnerable to significant financial losses should their shipments be affected by the conflict.
The immediate impact of the conflict is seen in the rising freight costs. Ananat Srivastava, a home textile exporter, reports a 20-25% increase in freight costs to major trading destinations, with a particularly sharp rise of approximately 1000% to the Gulf region. This surge in transportation expenses is attributed to the increased risks and logistical challenges associated with navigating the conflict zone. Moreover, shipping schedules have become erratic, with transit times increasing by as much as 30%. This unreliability in shipping schedules makes it difficult for Indian businesses to plan their operations and fulfill their commitments to customers. The delays and increased costs are impacting a wide range of industries, from textiles and apparel to chemicals and agricultural products. Rajat Mehra, a Director at Rajat Chemicals Industry, confirms the increase in costs and significant delays, illustrating the widespread nature of the problem. The rise in freight costs is not solely a result of the Iran-Israel conflict; global shipping has been facing pressure from various factors, including congestion in ports and logistical bottlenecks. The current situation, however, exacerbates these problems, placing additional strain on Indian businesses.
The potential closure of the Strait of Hormuz, a critical maritime chokepoint for global trade, poses a significant threat to India's energy security. Approximately 20 million barrels of oil pass through the Strait of Hormuz every day, accounting for about 20% of global petroleum liquids consumption. India relies heavily on this route for its crude oil imports, with an estimated 60-65% of its oil supply transiting through the Strait. A disruption to this crucial shipping lane would lead to a sharp increase in oil and LNG prices, which would, in turn, fuel inflation across the Indian economy. Sectors that are heavily reliant on Middle Eastern energy, such as refining, chemicals, fertilizers, and transportation, would be particularly vulnerable to such a disruption. Furthermore, agricultural exports to Iran, including basmati rice, bananas, and tea, are already facing challenges, with large consignments stranded at ports due to payment and shipping disruptions. Sumit Jain, Managing Director of Kanin Originals, highlights the vulnerability of India's exports moving via Dubai's free zones, which serve as warehousing hubs for the Middle East, Africa, and GCC nations. Any disruption to these hubs would further exacerbate the challenges faced by Indian traders.
In addition to the direct impact on trade and energy security, the escalating conflict is also affecting marine insurance premiums. Jitendra Srivastava, CEO of Triton Logistics & Maritime, notes a sharp surge in marine insurance premiums, especially for shipments transiting through risk-prone zones such as the Red Sea. He estimates that insurance rates for a Rs 50 crore bulk cargo shipment could double, from Rs 1.5 lakh to Rs 6.5 lakh, when war risk cover is required. This increase in insurance costs, combined with greater security risks, is compelling freight rates to jump by 30-50%, as shipping lines pass on the costs to customers. Exporters are also exploring alternative, longer routes to avoid risk zones, which further adds to transit time and cost. Hector Patel, Chief Operating Officer–Sea, at Jeena and Company, suggests that oil shipments may need to be re-routed, and international shipping lanes could be severely disrupted if tensions rise. He also warns of potential congestion in alternative South Asian ports as transshipment volumes are redirected.
The long-term implications of the Israel-Iran conflict for India's economy are significant. Ratings agency Crisil has cautioned that a prolonged or escalating conflict, especially if it disrupts energy supplies, could aggravate risks, raise inflation, and pressure margins in oil-dependent sectors. The agency recommends that energy-intensive sectors and those with exposure to global shipping and insurance costs should be closely monitored for any escalation or supply chain disruptions. The conflict underscores the importance of diversifying India's trade partners and reducing its dependence on the Middle East for energy and other critical resources. Investing in alternative energy sources and strengthening trade ties with other regions could help to mitigate the risks associated with geopolitical instability in the Middle East. The Indian government may also need to consider providing support to businesses affected by the conflict, such as through subsidies or tax breaks. Moreover, enhancing port infrastructure and improving logistical efficiency can help to reduce shipping delays and lower transportation costs. The current situation serves as a wake-up call for India to proactively address its vulnerabilities and strengthen its resilience in the face of global challenges.
While India enjoys strong bilateral trade relationships with countries within the region, including Israel, Iran, and the GCC, the current geopolitical instability highlights the precarious nature of these relationships. India's trade with the GCC reached $178.56 billion in FY 2024-25, accounting for 15.4% of India’s total global trade. The UAE and Saudi Arabia are India's top GCC trading partners, with trade primarily involving energy imports, gems and jewellery, machinery, electronics, and food products. India's trade with Iran, though diminished by sanctions, remains important, particularly for agricultural exports. India was the third-largest importer of Iranian goods in 2023, with exports to Iran totalling $1.24 billion in FY 2025. Trade with Israel has also grown steadily, reaching $6.53 billion in FY 2024, with India exporting $4.53 billion worth of goods and importing $2 billion in high-tech, electronics, and defence-related items. The escalating conflict threatens to disrupt these established trade patterns and undermine the economic benefits that India derives from its engagement with the region. The focus should be on maintaining stable relationships through diplomatic efforts even during times of conflict to safeguard trade interests to the greatest extent possible. Strong and reliable communication channels need to be ensured to prevent the situation from spiraling further.