New Delhi: The escalating tensions between Israel and Iran could have a severe impact on India's economy. Especially on energy security and trade costs.
Oil shipping disruption, impact on import tariffs: India depends on the Persian Gulf for more than 80 percent of its crude oil imports. Oil is transported through the Strait of Hormuz, a narrow waterway bordering Iran. Any military escalation or blockade in this region could disrupt oil shipments. Global prices could rise and directly impact India's import tariffs.
During the 2019 oil crisis in the Gulf, ship insurance premiums rose by 20 percent. Oil prices temporarily rose by 4 to 5 percent. Countries like India have been forced to consider costly re-routing and procurement strategies. The uncertainty complicates India’s trade ties with both countries.
Bilateral trade with Israel was worth $10.1 billion in fiscal year 2023. Defence, technology and agriculture are key sectors. On the other hand, trade with Iran has declined due to US sanctions but is still important for strategic items like dry fruits, fertilisers and urea. With further instability, these imports could decline or become more expensive.
Moreover, the International North-South Transport Corridor (INSTC), which connects India to Russia and Central Asia via Iran, is being delayed due to security and sanctions fears. This undermines India’s plan to reduce its reliance on China-backed trade routes.
Impact on Basmati Rice Trade: The escalating conflict between Iran and Israel is affecting India’s basmati rice trade, especially exporters from Punjab and Haryana. Iran is one of the largest buyers of Indian basmati, having purchased 8.55 lakh metric tonnes worth about ₹6,374 crore in 2024-25. Iran alone accounts for 30-35% of all basmati exports from India.
Due to the recent tensions, many private Iranian importers now take six to eight months to make payments. This is causing financial stress for Indian traders. Iran's government-backed agency, the Government Trading Corporation (GTC), has taken up to 180 days to release payments. Due to this, some Indian exporters have started sending their rice to other countries, even though they earn less profit to sustain their business.
Impact on Indian stock market too:
India's financial markets will also be affected. Increased conflict in West Asia is triggering risk sentiment among investors. For example, when Iran retaliated after the killing of General Qassem Soleimani in 2020, the Sensex fell more than 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 hike.