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

By Admin

23 Jun, 2025

The ongoing conflict between Iran and Israel is rapidly evolving into a geopolitical flashpoint with potential far-reaching consequences for global trade India being no exception. Experts warn that any further escalation could significantly disrupt India’s trade relations with the broader West Asian region, impacting both economic growth and price stability.

Immediate Impact on Indian Trade

The rising tensions have already started affecting India’s exports to both Iran and Israel. Mumbai-based exporter and Technocraft Industries India founder chairman, Sharad Kumar Saraf, expressed serious concern, stating, “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.” Saraf’s company has begun holding back consignments, anticipating logistical hurdles and market instability.

Technocraft, which deals in drum closures, nylon and plastic plugs, and capseal closures, is among several Indian firms affected by the turmoil. The exporter community is still reeling from the prolonged Israel-Hamas conflict and attacks on Red Sea vessels by Yemen-backed Houthi rebels, which had already forced shipping lines to reroute cargo via the Cape of Good Hope, dramatically increasing shipping time and costs.

Strategic Routes Under Threat

The current conflict has now spread its shadow over another key maritime corridor: the Strait of Hormuz. As tensions heighten, this vital shipping lane through which around 60-65% of India’s crude imports transit could face disruptions. The strait is crucial for the global energy trade, particularly for oil exports from Saudi Arabia, Iran, Iraq, Kuwait, and the UAE. Nearly half of India’s LNG imports also pass through this 21-mile-wide chokepoint. Any closure here could severely impact India’s energy security, raising crude prices and fueling inflation.

Economic Repercussions and Rising Costs

Ajay Srivastava, Founder of the Global Trade Research Initiative (GTRI), emphasized the cascading risks of a prolonged regional conflict. “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,” he warned.

India’s trade footprint in West Asia is substantial. Exports to Iraq, Jordan, Lebanon, Syria, and Yemen collectively stood at USD 8.6 billion, while imports reached USD 33.1 billion. With Iran, India exported USD 1.24 billion in FY2025, led by Basmati rice (USD 753.2 million), followed by bananas, tea, and Bengal gram. Imports from Iran stood at USD 441.8 million. In contrast, trade with Israel totaled USD 3.7 billion USD 2.1 billion in exports and USD 1.6 billion in imports.

The conflict also endangers perishable exports such as rice, bananas, and tea, especially vulnerable to delays and elevated shipping insurance premiums. Sanctions and blocked payment channels further threaten India’s ability to conduct smooth trade with the region.

Wider Impacts on Inflation and Trade Forecasts

The ripple effects of the Strait of Hormuz disruption could be severe. GTRI notes that a prolonged closure could spike oil prices, pressure the Indian rupee, complicate fiscal planning, and trigger inflation. India’s economy, which relies on imports for over 80% of its energy needs, could be exposed to volatility in global oil markets.

The Red Sea route, already under strain since October 2023 due to Houthi attacks, remains inaccessible. Nearly 80% of India’s merchandise trade with Europe and a large portion with the US flows through this region. These geographies make up 34% of India’s exports, underscoring the strategic importance of stable maritime corridors.

Global and Domestic Trade Projections

Global trade is expected to suffer from these disruptions. The World Trade Organisation (WTO) has revised its projection for global trade growth in 2025 from 2.7% to a contraction of 0.2%, reflecting growing instability and tariff-related barriers. Despite these headwinds, India’s overall exports had grown by 6% to USD 825 billion in 2024-25, with an optimistic outlook of crossing USD 900 billion this year. However, in May 2025, India witnessed a 2.17% year-on-year decline in exports, driven by reduced shipments of petroleum products.

Conclusion: A Test of India’s Strategic Diplomacy and Trade Resilience

India finds itself in a precarious position, balancing deep ties with Iran, Israel, the US, and Gulf states all directly or indirectly entangled in this conflict. Iran’s Chabahar Port remains a strategic asset for India, connecting it to Afghanistan and Central Asia while bypassing Pakistan. At the same time, any prolonged war scenario could undo years of trade growth and strain India’s diplomatic and economic resources.

As the situation unfolds, exporters, policymakers, and strategic think tanks will need to stay agile, mitigate supply chain risks, and diversify both trade routes and energy sources. The Iran-Israel conflict is no longer a distant war it’s a direct challenge to India's trade stability and economic resilience.