Iran-Israel conflict: Govt to review trade impact with stakeholders

Business Standard

7 hours ago

The government is closely monitoring the situation arising from the Iran-Israel conflict, and a meeting with shipping lines, container firms, and other stakeholders will be held this week to assess the impact on the country's overseas trade and address any issue, a top official said on Monday.
Commerce Secretary Sunil Barthwal said that the impact of the war on India's trade will depend on how the situation unfolds over a period of time.
"We are watching the situation. We are also calling a meeting (this week) of all the shipping lines, the container organisations and the concerned departments, and stakeholders to understand from them that what are the kind of issues they are facing and how we can sort it out," he told reporters here.
Exporters have stated that the war, if escalated further, would impact world trade and push both air and sea freight rates.
They have expressed apprehensions that the conflict is expected to impact movement of merchant ships from the Strait of Hormuz and Red Sea.
Nearly two-thirds of India's 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 depends on imports for over 80 per cent of its energy needs.
According to think tank GTRI, 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.
Meanwhile, Israel's June 14-15 strike on Houthi military leadership in Yemen has also heightened tensions in the Red Sea region, where Houthi forces have already attacked commercial shipping.
For India, this poses another serious risk. Nearly 30 per cent of India's west-bound exports to Europe, North Africa, and the US East Coast travel through the Bab el-Mandeb Strait, now vulnerable to further disruption, the GTRI has said.
Indian export consignments gradually started moving through the Red Sea route but now again it may get impacted.
Cargo ships had gradually returned on Red Sea routes, saving them 15-20 days while moving to US and Europe from India and other parts of Asia.
The present conflict that began with an attack on Israel on October 7, 2023 had brought cargo movement through Red Sea routes to a halt due to attacks by Houthi rebels on commercial shipping. After the US intervened with attacks on the rebels, the firing on commercial ships stopped.
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.
India's exports to Israel have fallen sharply to USD 2.1 billion in 2024-25 from USD 4.5 billion in 2023-24. Imports from Israel came down to USD 1.6 billion in the last fiscal from USD 2.0 billion in 2023-24.
Similarly, exports to Iran of USD 1.4 billion, which were at the same level in 2024-25 as well as in 2023-24, could also suffer. India's imports from Iran were at USD 441 million in FY25 as against USD 625 million in the previous year.
The conflict adds to the pressure world trade was under after the US President Donald Trump announced high tariffs.
Based on the tariff war impact, the World Trade Organisation (WTO) has already said that the 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 that had grown 6 per cent on year to USD 825 billion in 2024-25.