Iran-Israel war escalation to impact India' s trade with West Asia, say experts

Time of India

3 hours ago

Any further escalation of the ongoing war between
Iran
and Israel will have wider implications for
India
's trade with West Asian countries, including Iraq, Jordan, Lebanon, Syria, and Yemen, say experts.
They said that the war has already started impacting India's exports to Iran and Israel.
The US attacked three sites in Iran early Sunday, inserting itself into Israel's war aimed at destroying the country's nuclear programme in a risky gambit to weaken a longtime foe that prompted fears of a wider regional conflict as Tehran accused Washington of launching "a dangerous war".
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"We are in for big trouble now because of this war. It will have a cascading effect on India's trade with West Asian countries," Mumbai-based exporter and founder chairman of
Technocraft Industries India
Sharad Kumar Saraf said.
Saraf said that his company is also holding back consignments to both these countries.
Technocraft Industries
manufactures drum closures, nylon and plastic plugs, capseal closures, and clamps.
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"There will be a cascading effect of this war," he added.
Another exporter said that the Indian traders community is already reeling under the impact of the Israel-Hamas conflict and involvement of Yemen-backed Houthis' attack on shipping vessels in the Red Sea. Due to that, shipping lines from India were taking consignments from the Cape of Good Hope, encircling the African continent.
Now, because of the Iran-Israel war, another key trading route - the Strait of Hormuz - is getting affected.
"This route will hit the movement of oil tankers. I have a feeling that oil tankers will find new routes but that will push crude oil prices. It will have implications on inflation as crude oil prices are the mother of all prices," Saraf said.
Think tank
Global Trade Research Initiative
(GTRI) said that a wider regional escalation could threaten India's much larger trade with the broader West Asian region, including Iraq, Jordan, Lebanon, Syria, and Yemen, where Indian exports total USD 8.6 billion and imports stand at USD 33.1 billion.
"Any disruption to shipping lanes, port access, or financial systems in this corridor would severely impact India's trade flows, inflate freight and insurance costs, and introduce fresh supply chain risks for Indian businesses," GTRI Founder Ajay Srivastava said.
India's exports to Iran stood at USD 1.24 billion in FY2025, with key items including Basmati rice (USD 753.2 million), banana (USD 53.2 million), soya meal (USD 70.6 million), Bengal gram (USD 27.9 million), and tea (USD 25.5 million). Imports stood at USD 441.8 billion last fiscal.
With Israel, India's exports stood at USD 2.1 billion and USD 1.6 billion in imports in 2024-25.
He said that the ongoing US-Israel strikes on Iran and the threat of wider conflict could significantly disrupt this trade.
Payment channels already strained by US sanctions may face further blockages, while heightened shipping risks in the Gulf could drive up insurance costs and delay shipments.
"Perishable exports like rice, bananas, and tea are especially vulnerable. A prolonged conflict could dampen Iranian demand and squeeze Indian exporters, particularly in the agricultural sector," Srivastava said.
GTRI said that a key concern is the potential disruption to the Strait of Hormuz, through which roughly 60-65 per cent of India's crude imports transit.
"Any blockade or military escalation in this vital maritime corridor would severely impact India's energy security, drive up oil prices, and trigger inflationary pressures at home," it added.
India enjoys deep historical, cultural, and economic ties with Iran, once a major crude oil supplier and views Iran's Chabahar Port as a strategic gateway to Afghanistan and Central Asia, providing crucial connectivity while bypassing Pakistan.
Yet India also maintains robust relations with the US, Israel, and Gulf Arab states, each now directly or indirectly involved in the unfolding confrontation, Srivastava said.
India's crude oil and half of its LNG imports pass through the Strait of Hormuz, which Iran has 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 depends on imports for over 80 per cent of its energy needs.
The Strait of Hormuz, which lies between Iran to the north and Oman and the United Arab Emirates to the south, serves as the main route for oil exports from Saudi Arabia, Iran, Iraq, Kuwait, and the UAE. Many liquefied natural gas (LNG) shipments, especially from Qatar, also pass through the strait.
According to the Delhi-based economic think tank, any closure or military disruption in the Strait of Hormuz would sharply increase oil prices, shipping costs, and insurance premiums, triggering inflation, pressuring the rupee, and complicating India's fiscal management.
The present conflict that began with an attack on Israel on October 7, 2023, has brought cargo movement through Red Sea routes to a halt due to attacks by
Houthi
rebels on commercial shipping.
Last year, the situation around the Bab-el-Mandeb Strait, a crucial shipping route connecting the Red Sea and the Mediterranean Sea to the Indian Ocean, escalated due to attacks by Yemen-based Houthi militants.
Around 80 per cent of India's merchandise trade with Europe passes through the Red Sea, and substantial trade with the US also takes this route. Both these geographies account for 34 per cent of the country's total exports.
The
Red Sea Strait
is vital for 30 per cent of global container traffic and 12 per cent of world trade.
Based on the tariff war impact, the
World Trade Organisation
(
WTO
) has already said that global trade will contract 0.2 per cent in 2025 as against the earlier projection of 2.7 per cent expansion.
India's overall exports had grown 6 per cent on year to USD 825 billion in 2024-25. This year it is expected to cross USD 900 billion.
Snapping the two-month rising trend, India's exports declined by 2.17 per cent year-on-year to USD 38.73 billion in May due to a fall in petroleum goods' shipments.