Oil, Basmati rice and even the internet: The Israel-Iran war can hit India hard

New Indian Express

10 hours ago

The Israel-Iran conflict is rattling the world—and for the right reasons.
The visual of the Iranian TV station being hit when its most famous woman anchor, a mother of two children, was on air was but the latest in a series of chilling images emerging from the war zone.
For India, the conflict presents a complex diplomatic tightrope: it must safeguard vital energy interests, uphold regional connectivity plans, and balance its security partnerships—all while maintaining a neutral and pragmatic international posture.
Oil and Basmati rice headaches
The growing confrontation between Israel and Iran especially carries serious economic consequences for India, particularly in terms of energy security and trade costs.
India depends on the Persian Gulf for over 80% of its crude oil imports, with significant volumes passing through the Strait of Hormuz—a narrow maritime passage bordered by Iran. Any military escalation or blockade in this zone could disrupt the flow of oil, pushing global prices up and directly affecting India's import bill.
In fact, during the 2019 tanker crisis in the Gulf, insurance premiums for ships surged by up to 20%, and oil prices temporarily spiked by 4-5%, forcing countries like India to consider costly re-routing and stockpiling strategies.
The uncertainty also complicates India's trade links with both nations.
Bilateral trade with Israel stood at $10.1 billion in FY 2023, with defence, technology, and agriculture forming core sectors. On the other hand, trade with Iran has declined due to US sanctions but still remains important for strategic items like dry fruits, fertilisers, and urea. With further instability, access to these imports could shrink or become more expensive.
Moreover, the International North-South Transport Corridor (INSTC), which connects India to Russia and Central Asia via Iran, faces delays due to fears around security and sanctions, undermining India's plan to reduce reliance on China-backed trade routes.
The growing conflict between Iran and Israel is also affecting India's Basmati rice trade, especially for exporters in Punjab and Haryana. Iran is one of the biggest buyers of Indian Basmati, having purchased over 8.55 lakh metric tonnes in 2024–25, worth nearly ₹6,374 crore. In strong trade years, Iran has made up 30 to 35% of all Basmati exports from India.
Recent tensions and older problems with delayed payments have made things difficult. Many private Iranian importers now take six to eight months to make payments, creating financial pressure for Indian traders. Even Iran's government-backed agency, the Government Trading Corporation (GTC), has taken up to 180 days to release payments. Because of this, some Indian exporters have started sending their rice to other countries, even if it means earning lower profits, just to keep their business running.
Highly sensitive stock markets
India's financial markets are not immune either. Increased volatility in West Asia often triggers a risk-off sentiment among investors. For instance, when Iran retaliated after the killing of General Qassem Soleimani in 2020, the Sensex dropped by over 700 points in a single day, and the rupee weakened due to rising crude prices. A prolonged conflict could pressure the Reserve Bank of India to intervene in the forex market and reconsider its inflation projections.
For a country trying to maintain stable growth and rein in fiscal deficits post-COVID, such external shocks can be deeply destabilising. The recent rise in conflict between Israel and Iran has shaken global financial markets, and India has not been spared.
On June 13, the BSE Sensex dropped by around 1,300 points, while the Nifty 50 fell below the 24,500 marks, following news of Israeli strikes on Iranian nuclear sites. The sharp fall mirrored global market reactions, especially in Asia. Stocks in India's oil and gas sector, including BPCL, HPCL, and Indian Oil, saw losses of nearly 3.5%, as Brent crude oil prices jumped almost 9%, driven by fears of supply disruption in the Middle East.
Earlier in the week, the Sensex had already fallen by over 800 points, with major losses seen in companies like L&T, Infosys, and ICICI Bank, as investors reacted to concerns about rising tensions and costlier crude imports. Although markets have started to recover, the episode highlights how India's stock market and inflation outlook remain highly sensitive to geopolitical instability in West Asia
Strategic Crossroads: Chabahar Port Caught in the Crossfire
India's strategic interests in Iran, especially through its long-term investment in the Chabahar Port, now face increasing uncertainty due to the deepening hostilities between Israel and Iran.
Chabahar, located on the Gulf of Oman, is India's gateway to Afghanistan and Central Asia, bypassing Pakistan. It is central to India's larger connectivity vision, including the International North-South Transport Corridor (INSTC). With Israel's growing intelligence operations across the region and Iran's heightened readiness for retaliation, the port lies in a zone increasingly vulnerable to military escalations or covert sabotage.
In recent months, reports of drone strikes, cyber intrusions, and naval confrontations in adjacent waters have raised alarms over the security of regional infrastructure. India, having committed over $85 million in port development and operating a terminal through India Ports Global Limited (IPGL), is directly exposed to these uncertainties.
Moreover, any deterioration in Iran's regional position due to military confrontation with Israel could invite harsher Western sanctions or even affect shipping insurance, stalling the commercial viability of Chabahar. In fact, while the port was exempted from US sanctions due to its developmental role in Afghanistan, future escalations may put that exemption at risk.
The Iran–Israel rivalry also limits India's diplomatic manoeuvrability, especially as India deepens its security and defence ties with Israel. Balancing this relationship while safeguarding its interests in Iran requires deft diplomacy. As New Delhi pursues its Act West policy and aspires to emerge as a transcontinental trade facilitator, sustained instability in Iran—driven by external hostilities—could derail key infrastructure goals that have been years in the making.
Digital lifelines at risk too
As tensions between Israel and Iran escalate, the spotlight has largely remained on military strikes, nuclear rhetoric, and oil supply chains. However, one of the most understated but critical concerns emerging from this conflict is the potential disruption of undersea cable infrastructure.
Submarine cables carry nearly 95% of global internet and data traffic, and several high-capacity routes—including the Europe India Gateway (EIG), FLAG(Fiber-Optic Link Around the Globe), and SEA-ME-WE 5(South East Asia–Middle East–Western Europe 5)—run through maritime corridors near Israel, Iran, and conflict-prone zones like the Red Sea, Gulf of Oman, and the Strait of Hormuz. These routes are vital to Europe-Asia connectivity and directly affect countries like India.
Recent naval manoeuvres by Israel near Haifa and increased Iranian presence near the Strait of Hormuz heighten the risks of deliberate or accidental damage to these cables. The danger is compounded by the cyber capabilities of both countries, with the possibility of hybrid attacks on cable landing stations no longer being hypothetical.
For example, in 2024, three major cables—AAE-1, EIG, and Seacom—were disrupted in the Red Sea during regional conflict escalation, leading to latency issues across Africa, the Gulf, and South Asia. These incidents, likely linked to regional hostility involving Houthi actors aligned with Iran, forced ISPs(Internet Service Provider) in India and elsewhere to reroute traffic via longer, costlier routes.
With cable damage costing millions in economic loss per hour and affecting critical sectors such as banking and defence, the threat to this invisible infrastructure is no longer negligible.
India stands particularly vulnerable in this scenario. Its booming digital economy, which contributes over $245 billion to the national GDP, relies heavily on these cables, especially those that land in Mumbai, Chennai, and Kochi.
Over 90% of India's global data flow transits through the Middle East, meaning that any disruption near Israel or Iran could cascade into serious domestic slowdowns. The 2021 OECD (Organisation for Economic Co-operation and Development) report noted that a single cable break can reduce bandwidth by up to 70% in affected corridors, a staggering figure in the context of India's dependence on IT exports and cloud services.
To mitigate such risks, India must not only diversify its undersea cable routes but also push for regional diplomatic frameworks—such as through BIMSTEC or the Indian Ocean Rim Association—to include protection of digital infrastructure. Collaborations with tech giants like Google (which is developing the Blue-Raman cable) and Reliance Jio should be leveraged to create routes that bypass the Red Sea entirely.
Simultaneously, India's naval command and surveillance networks like the Information Management and Analysis Centre (IMAC) should monitor submarine cable zones for early warnings of sabotage. As the Israel–Iran conflict transforms into a more complex, hybrid theatre of war, undersea cables—though invisible—are likely to become a key battleground, and India cannot afford to ignore their strategic importance.
No longer a distant regional issue
In short, the Israel–Iran conflict isn't a distant regional issue—it has significant implications for India's economy, connectivity, trade, and strategic autonomy. From rising crude prices and delayed Basmati rice payments to risks facing the Chabahar Port and undersea data cables, the crisis is touching multiple facets of India's national interest.
As global volatility deepens, New Delhi must respond with foresight and balance—strengthening its resilience in energy and digital infrastructure, protecting its trade corridors, and engaging all sides diplomatically without compromising on long-term goals.
In an increasingly interconnected world, India's ability to navigate such external shocks will define not just its foreign policy success, but also its economic stability and strategic relevance.
(Dr Anil Kumar P is Associate Professor, Department of International Relations, Central University of Kerala, Capital Centre.)