The escalating geopolitical standoff between Israel and Iran is rattling global commodity markets and reigniting fears of economic volatility, particularly in energy-importing nations like India. While India’s trade exposure to the two countries remains limited, analysts warn that a prolonged conflict could elevate risks to inflation, external balances, and sectoral profitability, especially if crude oil prices continue their upward trajectory.
According to a credit alert released by Crisil Ratings, the ongoing crisis has had a limited immediate impact on India Inc’s global trade, but risks loom large. “A sustained escalation in the Middle East could trigger margin pressures in multiple sectors,” the agency noted, citing oil price volatility and potential supply disruptions as key concerns.
Crude Oil Surge Raises Red Flags
The most immediate impact has been felt in global energy markets. Brent crude prices surged to $73–76 per barrel in June, compared to an average of $65 in April-May 2025. Though still lower than the FY25 average of $78 per barrel, analysts caution that any disruptions to the Strait of Hormuz—a strategic oil chokepoint controlled by Iran—could drive prices sharply higher.
India, which imports more than 85 percent of its crude oil needs, is particularly vulnerable. The Reserve Bank of India has previously estimated that every 10 percent increase in crude prices could push up consumer inflation by 30 basis points (bps) and dent GDP growth by 15 bps.
“Should Brent crude average above $80 per barrel, macroeconomic stability could come under pressure,” Crisil warned.
Limited Trade, But High Indirect Exposure
India’s direct trade with Israel and Iran is modest, comprising less than 1 percent of its total exports and imports in FY25. Ministry of Commerce data shows:
- Exports to Israel: $2.18 billion (0.49 percent of total)
- Imports from Israel: $1.64 billion (0.22 percent of total)
- Exports to Iran: $1.26 billion (0.28 percent of total)
- Imports from Iran: $0.45 billion (0.06 percent of total)
However, the indirect impact could be significant. For example, over 54 percent of India’s LNG imports—vital for the power and fertilizer sectors—transit through the Strait of Hormuz. Disruptions could result in higher spot LNG prices and supply chain stress.
Sectoral Breakdown: Mixed Impacts
Crisil highlighted sector-specific risks from rising crude oil and freight costs:
- Upstream Oil Companies: Stand to benefit from higher crude prices due to fixed cost structures.
- Downstream Refiners: May face margin pressure as elevated input costs cannot always be passed on to consumers.
- Specialty Chemicals & Paints: Crude-linked inputs make up around 30 percent of costs. Profitability could weaken amid competitive pricing and limited pricing power.
- Aviation: Jet fuel accounts for 35–40 percent of operating costs. Route diversions and higher travel time could compound pressure, though strong travel demand may offset margin erosion.
- Tyres: With nearly 50 percent crude-linked costs, margins may be strained—particularly in OEM supply chains where price pass-through lags.
- Flexible Packaging & Synthetic Textiles: With over 70–80 percent of production costs tied to crude, these sectors could also feel the heat, although improved demand-supply conditions offer some cushion.
Key Export Sectors with Exposure
- Basmati Rice: Iran and Israel accounted for about 14 percent of India’s FY25 exports. Demand remains stable, but prolonged conflict could delay payments and extend working capital cycles.
- Diamonds: Israel is a key hub, handling 4 percent of India’s polished diamond exports. However, the sector has alternate hubs in the UAE and Belgium, which should mitigate trade disruptions.
- Fertilizers: Israel contributed 7 percent of India’s imports of muriate of potash (MoP), but the overall MoP share in domestic consumption remains under 10 percent, keeping the sector’s risk low.
Outlook and Policy Watch
Economists believe the broader economic impact on India remains manageable as long as crude prices do not remain elevated for a prolonged period.
“India’s macro-financial position is relatively robust. But persistent volatility in energy and freight costs could widen the current account deficit, stoke inflation, and strain sectoral margins,” an ICRA analyst said.
Crisil noted that companies with low capex intensity and strong balance sheets are better positioned to weather temporary shocks. However, the agency signaled that it would monitor credit quality across sectors on a case-by-case basis if tensions escalate further.
For now, India’s policymakers and industry remain in a wait-and-watch mode, closely tracking crude price trends, supply chain bottlenecks, and geopolitical signals from West Asia—aware that the stakes, both economic and strategic, are rising.
