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When Narendra Modi flew to Jerusalem on February 26 to address the Knesset — becoming the first Indian prime minister to do so — the timing carried an unmistakable strategic signal. Two days later, U.S. and Israeli forces launched their campaign against Iran. Whatever New Delhi knew, or chose not to know, about what was coming, the Iran war arrived on India’s doorstep with extraordinary speed. And it is not leaving quietly.
What began as a distant military confrontation in the Persian Gulf has evolved, within three weeks, into a multi-sector economic emergency for the world’s fifth-largest economy — one whose political consequences could prove as damaging to Modi’s BJP-led coalition as any opposition campaign.
The Squeeze Begins: Airlines, Gas, and the Rupee
The first tremors were felt in the aviation sector. From February 28 to March 9, IndiGo and Air India failed to operate 64% of their 1,230 scheduled flights to the Middle East, Europe, and North America. The cause: a dangerous double blockage. Iranian conflict has effectively closed Middle Eastern airspace, while Pakistan’s airspace ban — in place since April 2025 — simultaneously shuts India’s western corridor.
The result is operationally absurd and financially punishing. IndiGo is now routing UK-bound flights via Africa. Air India has added fuel stops on North America routes. Jet fuel, which already accounts for 30 to 40% of airline operating costs, attracts an 11% federal tax plus state levies reaching 29% in some jurisdictions.
Both carriers have formally approached the government seeking fuel tax relief and reductions in private airport charges. HSBC has described the situation as a “significant burden” on airline profitability. The numbers confirm it: Air India, already carrying a $433 million loss from last year and absorbing a forecast $600 million annual hit from the Pakistan airspace ban alone, is now navigating a second simultaneous crisis.
Beyond aviation, the energy shock is propagating rapidly through India’s industrial supply chain. GAIL and Indian Oil Corporation have restricted gas supplies to industrial customers after Qatar’s LNG production halt and Strait of Hormuz shipping disruptions choked imports.
India is the world’s fourth-largest LNG buyer, with heavy dependence on Gulf sources. When that supply compresses, the downstream effects are immediate and wide.
The rupee has fallen to a record low below 92 against the dollar. The Reserve Bank of India has sold approximately $12 billion in foreign exchange reserves to stabilize the currency, while simultaneously purchasing bonds worth 1 trillion rupees to maintain liquidity.
Financial markets are jittery. The central bank is doing considerable heavy lifting to prevent a disorderly adjustment.
Sector by Sector: The Anatomy of an Emerging Crisis
Fertilizers and Agriculture: This is potentially the most consequential transmission channel — and the least visible in daily headlines. Natural gas is the primary feedstock for nitrogen fertilizer production. With gas supplies curtailed, manufacturers including Gujarat Narmada Valley Fertilizers have announced production cuts.
India imports approximately one-third of its fertilizer requirements. Cuts to domestic production compounded by import disruptions arrive precisely as farmers prepare for the major cereal planting season. If planting inputs are inadequate or unaffordable this season, the harvest consequences arrive months later — silently, devastatingly, in the form of food inflation that hits the rural poor and urban working class simultaneously.
In a scenario where oil averages $120 per barrel through 2026-27, the State Bank of India’s chief economist projects inflation rising to 4.8% while GDP growth slips from 7% to 6.2%. For an economy whose political narrative rests substantially on growth momentum, that is a serious deterioration.
Ceramics, Tiles, and Industrial Manufacturing: The ceramics and tiles sector — concentrated in Gujarat, a BJP stronghold — is already planning production cuts due to fuel supply shortages. Restaurants across Indian cities are reporting shortages of industrial gas cylinders. These are not abstract statistics; they are the operational reality of millions of small businesses that employ tens of millions of workers.
Gems, Jeweler, and Exports: India’s gems and jewelry sector, a significant foreign exchange earner, is being hit by flight cancellations and airspace closures disrupting both exports and rough diamond imports from the UAE. Jindal Stainless has warned of shipment delays. Exporters across multiple sectors are reporting goods stranded at ports, with the government activating contingency storage at port facilities for exports destined for the Middle East.
Cooking Gas and Transport: The government has already raised cooking gas prices — a politically sensitive move in a country where LPG subsidies have been a cornerstone of BJP’s welfare outreach to lower-middle-class households. Retail petrol and diesel prices have been held for now, but analysts consider that position difficult to sustain if oil remains above $110. The rupee’s weakness amplifies import costs regardless of any price-holding decisions.
The Diplomatic Tightrope: Strategic Autonomy Under Pressure
Modi’s government has navigated the conflict’s diplomatic dimensions with characteristic pragmatism — but the balancing act is becoming harder to sustain.
The symbolism of Modi’s pre-war Jerusalem visit, combined with India’s decision to co-sponsor a UN Security Council resolution condemning Iran and criticizing its attacks on Gulf states, places New Delhi clearly in the U.S.-Israel-Gulf camp.
Yet India’s Iran exposure is substantial and cannot simply be wished away. Iran serves as India’s gateway to Eurasia through the International North-South Transport Corridor and the Chabahar Port — a strategically vital connectivity project for which India secured a rare U.S. sanctions waiver. Iran has also facilitated Indian military supplies transiting to Armenia. Ten million Indian nationals work across Gulf countries, sending remittances that are economically significant. Annual India-Gulf trade runs close to $200 billion.
Jaishankar has spoken twice with his Iranian counterpart since the conflict escalated. New Delhi hosted Iran’s Deputy Foreign Minister in early March. The message maintained throughout: dialogue, diplomacy, de-escalation. India is attempting to be simultaneously useful to Washington and non-hostile to Tehran — a position that satisfies neither fully, but preserves maximum flexibility.
The opposition Congress party, led by Sonia Gandhi, has accused the government of abandoning impartiality. From the other direction, analysts sympathetic to the U.S. alliance argue India should lean harder into its Western partnerships. Modi is, characteristically, governing from the center of these competing pressures — but the economic costs of the conflict are making that center increasingly uncomfortable.
The Political Arithmetic: Five States, Then 2029
Here is where geopolitics becomes electoral mathematics, and where the Modi government’s vulnerability comes into sharpest focus.
The BJP does not currently command an outright parliamentary majority. It governs through coalition arithmetic — a structurally weaker position than the dominance Modi enjoyed between 2019 and 2024. Coalition partners have their own electorates, their own economic constituencies, and their own tolerance thresholds for economic pain.
Five state assembly elections are approaching. Bihar votes later this year in a contest where the BJP’s alliance with Nitish Kumar’s JDU is load-bearing for national coalition mathematics. Upcoming contests in states with significant agricultural and working-class electorates — precisely the demographics most exposed to fertilizer shortages, cooking gas price increases, and food inflation — represent real political risk.
The mechanism is well established. India’s electoral history demonstrates consistently that rural voters respond to input cost shocks. When fertilizer becomes expensive or scarce, when cooking gas rises, when diesel — the fuel of tractors and rural transport — climbs, the governing party pays at the ballot box.
The 2024 general election already showed unexpected erosion in BJP support among rural constituencies. A sustained economic squeeze, arriving on top of that fragility, is a combination opposition parties will exploit with considerable skill.
Project this forward to 2029, and the stakes become existential for BJP’s governing project. A prolonged Iran conflict — one that keeps oil above $100, suppresses India’s growth rate, inflates food prices through two agricultural cycles, and strains the rupee — could fundamentally alter the economic narrative on which Modi has built his political dominance.
The promise of a developed India by 2047, of sustained 7% plus growth, of rising living standards for the aspirational middle class: all of these become harder to sustain credibly when kitchen table economics are moving in the wrong direction.
The View From New Delhi: Order From Disorder
India is not without advantages in navigating this crisis. Its diversified energy sourcing — Russian crude purchased at discount, Gulf imports, growing domestic renewables — provides cushioning unavailable to more exposed economies. Its diplomatic relationships span enough of the conflict’s protagonists to maintain channels others cannot.
Its large domestic market and relatively self-sufficient agricultural base provide buffers that smaller economies lack.
But buffers are not immunity. And time is the variable that determines whether a managed disruption becomes a structural economic setback.
Modi’s government understands this clearly. The RBI’s aggressive market interventions, the government’s contingency port measures, Jaishankar’s relentless diplomatic engagement — these are not the actions of an administration treating this crisis casually. They are the actions of a coalition government that knows, with precision, how much economic pain its political architecture can absorb before the mathematics begin to shift.
The Iran war did not ask India’s permission to arrive. It will not ask permission to linger. And if it does linger — if oil stays high, gas stays scarce, fertilizer stays expensive, and the rupee stays weak — the question that will dominate Indian politics long after the missiles stop flying is a simple one: who lost the economic miracle?
That question, more than any foreign policy position, will define Modi’s political legacy — and India’s next decade.
Disclaimer: The opinions and views expressed in this article/column are those of the author(s) and do not necessarily reflect the views or positions of South Asian Herald.
