The conflict between the United States and Israel on one side and Iran on the other side has escalates into a full-blown war with the neighbouring states being sucked into it. It not only has geopolitical implications but also economic consequences for the entire world. India will not be spared.
India is presently the country with the largest population in the world, 1.4 billion-strong and younger than most countries and the population is growing. The country is on track to becoming the world's 3rd largest economy by 2029, displacing Japan. The Indian economy is projected to become worth ₹4 trillion by the end of FY26.
India's industrial sector is experiencing a robust growth Driven by "Make in India" initiatives, PLI schemes, and infrastructure investment, key sectors like manufacturing, electronics, and automobiles are surging, contributing to a 17% GDP share with plans to reach 25% by 2030. The electronics and semiconductor market is projected to reach billion by 2030, while the automotive industry is expanding rapidly. Other high-growth areas include technical textiles, defence, and machinery.
All these factors have contributed to making India the world's 3rd largest consumer of crude oil and relies heavily of imports - nearly 85-90% of its crude oil needs. Naturally, with the demand for fuel and power is growing and India has become highly vulnerable to Middle Eastern instability under the given geopolitical situation.
The turbulence in the middle east continues and is unlikely to end any time soon.
Most immediate effect would be sharp rise in crude oil prices. Brent crude already jumped ~2-3% to over $72 / barrel following the start of attacks on Iran - over a period almost all prices would be impacted. Due to India's significant dependence on imported oil & gas, the bulk of which transits through the middle east, India stands to get adversely impacted by the WAR. The geopolitical situation is worsening and oil prices are skyrocketing reaching levels it has not seen over several months. Iran accounts for roughly 5% of global oil output. According to Bloomberg Economics analysts, total disruption of Iranian supply could raise prices by as much as 20%. They cautioned that "nearly 20% of global oil supply passes through the Strait of Hormuz, and a closure of the waterway could send prices as high as $108 per barrel" [1].
For India, therefore, it will mean that
- ⚑ Import bill will rise significantly widening the trade deficit
- ⚑ Closure of Strait of Hormuz (also called Oil Artery) is likely to Disrupt Oil Supply - 50% of India's monthly oil imports (2.6 million barrels per day) pass through this narrow waterway
Figure 1: How Important Hormuz is to Global Oil Flows (Source: Financial Times, US EIA)
Strait of Hormuz and Bal el-Mandeb Strait are the two Key maritime corridors connecting India to the Gulf region and to major markets in North America and Europe. But not just crude shipments, it facilitates movement of a host of other commercial shipments [2].
Figure 2: Strait of Hormuz Doesn't Just Help Passage Oil Only (Source ToI)
- ⚑ Disruption in Shipping routes - Shipping risks have intensified and commercial vehicles are now exposed to much higher collateral damage - the obvious outcomes are higher insurance premiums and freight costs which is making Indian exports less competitive.
- ⚑ In Case of prolonged rerouting, cargo destined for Europe and the US may h have to sail around the Cape of Good Hope, extending transit by 15-20 days. This again will drive up insurance and freight costs.
- ⚑ Investment in the Chabahar Port in Iran, intended as a gateway to Central Asia, could be delayed or damaged if the conflict escalates further
- ⚑ Fertiliser prices could rise sharply if supplies through the Strait of Hormuz are disrupted, potentially increasing India's subsidy burden.
- ⚑ Likely to Impact $1.2-Billion Basmati Rice Exports From India - the price rise in domestic market due to large orders from Iran is likely to get corrected
- ⚑ Likely to affect India's $4.5 billion electronic and technology exports - in 9M FY26, shipments of electronic goods to the UAE totalled $4.1 billion.
Unfortunately, the disturbances came just as consumption demand was starting to pick up. Various key consumer goods companies have already flagged concerns over the ripple effects of increasing crude prices -
- ✓ Interruption of the Global Supply Chain
- ✓ Weakening of Consumer Sentiment
- ✓ Likely disruption in remittance from the area [2].
While exporters such as Russia, Canada and Norway would gain, ajor importers including China, Europe and India stand to suffer.
56% of India's merchandise exports goes to the US and European markets and is routed through the Gulf areas. These disruptions are likely to hurt several sectors of the Indian economy. This is why the policy makers are now more vigilant of the geopolitical situation now. As the WAR unfolds a lot of uncertainties emerge and the true extent of devastations can be gauged only at a later time, when the war gets over. How soon that would be is a significant cause of warry.
From Investment POV
The following are the sector from an investment point of view. The markets are not conducive for taking active positions in any of the sectors. Nevertheless, there are some pockets where the investors could see some appreciation.
⬇Negative Impact On:
Aviation, Logistics, Paints, Fertilizer and Tyre companies are expected to face shrinking margins due to higher fuel and raw material costs.
Agri Export Exports of rice, tea and fruits to Africa and the West Asia are expected to take a major hit
Shipping risks have also intensified
⬆Positive Impact On:
Upstream oil companies (like ONGC) and
Defence stocks (like HAL, Bharat Electronics)
may see gains due to higher oil prices and increased geopolitical demand.
↔ Safe Havens:
Gold - seen prices surge toward record highs as hedge against uncertainty
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