By Nantoo Banerjee
The all-out war in West Asia, involving the US-Israel combine and Iran and covering 10 countries in the region, is expected to have a big economic backlash on India. At stake are India’s $120-billion trade in this region, huge oil imports, overall balance of payments, inflow of external investments, foreign repatriation and Rupee’s exchange rate stability among several others. The government may have to rewrite its annual budget expenditure and income projections for the next financial year. The crude oil prices are already up by over 20 percent in a week’s time. The country’s vulnerability is more pronounced in the case of supply of liquefied natural gas (LNG), almost 80 percent of which come from West Asia. Higher oil prices are bound to cause higher domestic inflation as they are linked with the cost of transportation, fertiliser output and farm production costs, logistic chains and manufacturing inputs.
The country’s economic links with West Asia run deep. As Iran, boasting the region’s biggest stockpile of ballistic missiles and drones, was liberally hitting its targets across the countries in the region, India’s trade and economic activities came to a standstill. West Asia accounts for 17 percent of India’s exports worth $ 99 billion, 55 percent of its crude oil requirement, 38 percent of remittances, annually. According to reports, around 10 million Indians live and work across the Persian Gulf region, sending home over $51 billion in remittances. For migrant workers and professionals, remittances are more than just financial transactions; they represent livelihoods, family support and economic stability.
The Indian government has reportedly activated emergency provisions to ensure there is no shortage of liquefied petroleum gas (LPG) in wake of the ongoing US-Israel-Iran war that has hit India’s energy imports. India, which was the world’s second-largest LPG importer last year, consumed 33.15 million metric tonnes of the fuel. LPG is a blend primarily composed of propane and butane. On March 7, India raised LPG cylinder prices supposedly due to supply disruptions from West Asian sources. QatarEnergy, a major supplier of liquefied natural gas (LNG) and related products to India, has stopped production at its Ras Laffan facility following Iranian drone strikes. This, combined with the closure of the Strait of Hormuz due to rising West Asia tensions, has significantly impacted energy shipments to India. Qatar supplies nearly half of India’s LNG requirement.
Qatar halted LNG production after its facilities were bombarded by Iran. It declared ‘force majeure’ on affected buyers, including Indian firms like Petronet LNG. The closure of the Strait of Hormuz has disrupted the movement of oil and gas tankers, including those from other Gulf suppliers. Indian petroleum companies, including Gas Authority of India Limited and Indian Oil Corporation, have reported a 10 percent to 30 percent reduction in gas supply to industries, with total supply disruptions reaching up to 40 percent. The situation could be worse in the coming weeks. The 14.2 kg domestic cylinder price rose by Rs. 60, reaching Rs.913 in Delhi. The 19 kg commercial cylinders saw a steeper hike of Rs. 115. This is the first major hike for domestic users since April 2025. The higher prices affect over 33 crore Indian consumers and are expected to raise inflation, with commercial price hikes potentially increasing restaurant and food costs.
Similarly, oil prices are surging. By the end of the week, Brent crude oil prices rose by nearly 30 percent, exceeding per barrel cost for the first time since 2024, mainly due to severe disruptions in the Strait of Hormuz after the US-Israel-Iran war. The West Asian war has already affected 20 percent of global oil supplies. It has forced shippers to avoid the region, driving up shipping costs and threatening further inflationary pressures on global energy. Shipping costs have hit record highs, with freight rates doubling in two weeks. Shipping diversions via the Cape of Good Hope significantly raise transit times by up to two weeks, increase fuel consumption, and skyrocket shipping costs for South and East Asian economies. This alternative route, taken for safety, causes container shortages and higher trade and energy import costs. The journey adds roughly 8,900 km to voyages, dramatically increasing fuel usage and insurance premiums, contributing to higher, inflationary costs for goods in the region.
The US-Israel-Iran war threatens to cause an energy crisis and an overall price inflation in India. With almost 40 percent of the country’s oil imports passing through the affected region, higher crude oil prices are bound to push up food and energy inflation. The Indian Rupee is also facing a big pressure, hitting record lows, which further increases the domestic cost of imports. Shipping, freight, and insurance costs are moving up due to regional insecurity, impacting trade with the Gulf. If high prices persist, India’s GDP growth for the next fiscal year could slow down from an earlier estimate of over seven percent to even below 6.5 percent. Although India is not involved in the war, the country’s deep economic integration with Gulf energy supplies, using the trade corridor, remittance flows, shipping and aviation route connections and currency movements are already impacting its businesses, trade, stock markets, external debt stress and domestic and foreign investments among others. The risks are immediate and multi-dimensional. For India, the impacts of the war translate directly into a wider trade deficit, pressure on the current account, higher input costs across industries and potential fiscal strain through fuel tax adjustments.
To tackle the immediate economic impact of the escalating Iran-US-Israel war, India must focus on securing energy supplies, managing logistics, and protect its trade balance by drastically cutting imports of non-essential items. For the present, it must diversify oil imports away from the Strait of Hormuz, using strategic reserves, and manage currency volatility. Currently, India is believed to have about 50 days of crude oil and product stocks, with roughly 100 million barrels in refinery and commercial inventories. India should step up purchases from Russia, the Atlantic Basin (USA, West Africa), and Latin America (Brazil, Venezuela) to bypass the Strait. Indian refiners may utilize Russian oil stored in the Indian Ocean and Arabian Sea as an immediate buffer. As India holds limited strategic LPG reserves, the government may prioritize securing quick shipments from alternative, non-Hormuz suppliers. To handle potential disruptions in agricultural exports (like tea and basmati rice to Iran), exporters may be advised to switch from Cost, Insurance, and Freight (CIF) terms to Free on Board (FOB) to manage risks. Time is running out. The government must take quick decisions to combat the trade and economic impact of the continuing cruel gulf war. (IPA Service)
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