From Tehran to Tel Aviv: How the Iran–Israel War Shakes Up India's Economy

India.com

9 hours ago

Israel-Iran war
India's energy story is deeply tied to the geopolitics of West Asia. As tensions escalate between Israel and Iran, the ripple effects are already being felt in the Indian economy — from rising oil bills and currency fluctuations to opportunities and challenges for Indian workers abroad.
India relies heavily on imports to meet its energy needs. Nearly 90% of the 6.5 million barrels of crude oil it consumes daily is imported. Alongside this, India brings in around 66% of its annual 36 million tons of LPG and about 50% of the 72 billion cubic meters of natural gas, mostly in the form of liquefied natural gas (LNG).
To understand the impact of this dependency, it's important to know what these fuels are: LPG (Liquefied Petroleum Gas) is a mix of propane and butane stored under pressure, widely used in household gas cylinders for cooking, especially in rural and urban homes.
is a mix of propane and butane stored under pressure, widely used in for cooking, especially in rural and urban homes. Natural gas , mainly methane, is used in its gaseous form for piped gas connections , industries , and power generation .
, mainly methane, is used in its gaseous form for , , and . LNG (Liquefied Natural Gas) is simply natural gas cooled to -162°C to make it easier to transport. Once delivered, it is converted back to gas for use in factories, power plants, and urban distribution networks.
Global fuel prices directly affect India's trade deficit and the value of the Rupee. For instance, earlier this year in May, the price of Brent crude oil dropped from $82 to around $60 per barrel, reducing India's import costs. As a result, the Rupee strengthened, with the exchange rate improving from ₹88 to ₹84 per US dollar.
However, this relief was short-lived. Following media reports and the eventual outbreak of conflict between Israel and Iran, oil prices surged by 20%, hitting $74 per barrel. If prices remain above $80 for the rest of 2025, India's import bill will rise sharply, increasing the trade deficit — which was already $283 billion last year. The Rupee has already weakened, now standing at ₹86 per US dollar.
This year alone, India is expected to import 5.7 million barrels of crude per day, 24 million tons of LPG, and over 36 billion cubic meters of LNG. In the financial year 2024–25, the country spent $137 billion on crude oil imports and another $36 billion on LNG and LPG, with the average crude price at $81 per barrel. A continued rise above $85 per barrel could push these numbers even higher. Although India's foreign exchange reserves remain strong at $697 billion, a sustained increase in energy costs could put pressure on the overall economy.
The conflict also highlights the strategic dimensions of India's relationships in the region. India's trade with Israel is about three times larger than with Iran, totaling $4.5 billion in 2023–24, with over half of that in petroleum products. More importantly, India is the largest buyer of Israeli military equipment, and Israel ranks as India's second-biggest defence supplier after Russia. Key imports include missiles, drones, radars, and electronic warfare systems, with several joint ventures and defence manufacturing units set up in India through Israeli partnerships.
In contrast, India's trade with Iran has declined sharply since 2019, when the U.S. ended a waiver that allowed India to buy Iranian oil despite sanctions. Back in 2018–19, India's oil imports from Iran were worth $12 billion, accounting for about 66.7% of total bilateral trade. Today, total trade between the two stands at just $2 billion. Even now, India exports key food items like rice ($734 million), soybean meal ($97 million), and bananas ($52 million) to Iran, while importing chemicals, LPG, and petroleum coke.
Earlier this year, the U.S. sanctioned four Indian shipping companies — Austenship Management, BSM Marine, Cosmos Lines, and Flux Maritime — for their alleged involvement in the trade and transport of Iranian oil. This reflects how sensitive the issue of Iranian energy remains in global politics.
Yet, rising oil prices could bring unexpected benefits too. Oil-rich Middle Eastern countries like the UAE, Saudi Arabia, Kuwait, and Qatar stand to gain from higher export revenues — and when these nations earn more, they tend to invest more in infrastructure, services, and domestic development. This can increase demand for migrant workers, especially from India.
Currently, around nine million Indians — mostly semi-skilled and unskilled workers — live and work in these countries. Many are employed in construction, domestic work, and maintenance services. With rising oil income, these countries are likely to expand projects and hire more workers, creating new opportunities for Indian migrants.
For states like Kerala, this means even more. About 10% of Kerala's 35 million residents work in the Middle East. The money they send home — foreign remittances — makes up around 20% of the state's income. It plays a crucial role in supporting millions of families, funding education, healthcare, and housing.
In short, rising energy prices driven by the Israel-Iran war are a double-edged sword for India. While they increase the cost of imports and weaken the Rupee, they may also open up more job opportunities abroad and boost remittance flows — offering some balance in a complex global equation. (Girish Linganna is an award-winning science communicator and a Defence, Aerospace & Geopolitical Analyst. He is the Managing Director of ADD Engineering Components India Pvt. Ltd., a subsidiary of ADD Engineering GmbH, Germany. Contact: [e-mail])