Iran–Israel war could push freight, insurance costs, disrupt Red Sea trade; govt to meet traders this week

Indian Express

6 hours ago

An escalating Iran–Israel war could push up freight and insurance costs on shipping routes and hinder efforts to normalise trade through the Red Sea, affecting Indian exports to West Asia and Europe, exporters and government officials said on Monday as the Commerce and Industry Ministry is set to meet traders this week to take stock of the situation.
This comes as the deadly conflict between Iran and Israel entered its fourth day, fuelling fresh concerns over global trade, especially oil flows, amid fears that Iran could block the Strait of Hormuz—through which 20–30 per cent of global oil trade passes—in retaliation for Israeli attacks.
'Freight and insurance costs could go up due to the ongoing war, but the route for Indian goods is away from the conflict zone. There has not been an immediate impact on Indian shipments,' a government official said. 'The Commerce and Industry Ministry will assess the situation and meet exporters and shipping representatives this week,' another official added.
'The impact of the war is likely to derail efforts to normalise Red Sea trade. Shipping on the route had shrunk dramatically due to Houthi attacks last year, but recently, around 30 per cent of vessels had resumed using it. The renewed tensions will also raise insurance premiums, hitting Indian exports to West Asia and Europe,' an exporter said.
The Global Trade Research Initiative (GTRI), in a report, said India has significant trade exposure to both warring nations. In FY25, India exported goods worth $1.24 billion to Iran and imported $441.9 million. Trade with Israel was even higher, with $2.15 billion in exports and $1.61 billion in imports, the report noted.
'But more critical than these bilateral flows is India's dependence on the region for energy: nearly two-thirds of its crude oil and half of its LNG imports pass through the Strait of Hormuz, which Iran has now threatened to close. This narrow waterway, only 21 miles wide at its narrowest point, handles nearly a fifth of global oil trade and is indispensable to India, which relies on imports for over 80 per cent of its energy needs,' GTRI Founder Ajay Srivastava said.
Srivastava warned that any closure or military disruption in the Strait of Hormuz would sharply raise oil prices, shipping costs, and insurance premiums—triggering inflation, pressuring the rupee, and complicating India's fiscal management.
'Israel's 14–15 June strike on Houthi military leadership in Yemen has heightened tensions in the Red Sea, where Houthi forces have already attacked commercial shipping. For India, this poses another serious risk. Nearly 30 per cent of its westbound exports to Europe, North Africa, and the US pass through the region,' GTRI said.
The renewed instability could pose deeper macroeconomic challenges for India, extending beyond trade, especially given its growing reliance on oil imports. While India was forced to halt oil imports from Iran following US sanctions in 2019, Goldman Sachs estimates that Iranian supply could fall by 1.75 million barrels per day (b/d) for six months before gradually recovering.
'Assuming OPEC+ compensates for half the peak shortfall from spare capacity, Brent could rise above $90 per barrel before retreating to the $60s by 2026 as supply recovers,' the investment bank said.
A fall in prices of fruits, pulses, and cereals helped ease India's headline retail inflation to a 75-month low of 2.82 per cent in May 2025. This trend prompted the Reserve Bank of India's Monetary Policy Committee (MPC) to cut the policy repo rate by a larger-than-expected 50 basis points. However, the RBI cautioned that 'monetary policy is left with very limited space to support growth'.
The Directorate General of Shipping had issued an advisory on Friday for all the Indian seafarers and Indian-flagged ships in Iranian ports or crossing through the Strait of Hormuz to be cautious, after Israel attacked Iran. It also advised seafarers to remain vigilant and avoid unnecessary movement, and adhere to local safety protocols and other regulations for their own safety.
Ravi Dutta Mishra is a Principal Correspondent with The Indian Express, covering policy issues related to trade, commerce, and banking. He has over five years of experience and has previously worked with Mint, CNBC-TV18, and other news outlets. ... Read More