West Asia crisis: Ind-Ra says economic impact on India could be limited, unless disruption is prolonged

Mumbai: The overall economic impact of the conflict between Iran and the US allies on India is expected to be limited, unless the disruption is prolonged, according to India Ratings and Research (Ind-Ra).

In the short term, the effects are likely to be observed mainly through higher prices for crude oil and petroleum products. 

Ind-Ra does not foresee an immediate supply shock, as most corporations have adequate inventories.

However, if the Strait of Hormuz were to close for an extended period, it could lead to increased costs for fuel, freight, and insurance, longer transit times, and affect the margins and working capital of Indian corporations involved in international trade.

In a statement, Ind-Ra notes that volumes are unlikely to be affected unless there is a significant downturn in global demand.

India’s export exposure to the Middle East is relatively modest, with the Gulf Cooperation Council (GCC) countries accounting for only 13% of exports. These exports are primarily concentrated in gems and jewellery, mineral fuels, electrical equipment, and industrial machinery. On the import side, goods from GCC countries make up just 16% of India's total imports, mainly consisting of crude oil, natural gas, gold, and diamonds.

“The Indian Rupee may weaken further as the proportion of GCC in India’s remittances is highest, and a prolonged period of conflict may impact remittance inflow into India. The short-term impact would be increase in commodity prices and some supply disruption. Overall, the impact depends on how long the conflict will continue," said Devendra Pant, chief economist, India Ratings & Research.

“The impact on account of closure of Strait of Hormuz is likely to be temporary. However, in the event of a long-term closure, it is likely that ships will have to take a longer route through the Cape of Good Hope. This could lead to input cost escalation through a rise in the freight cost by 3% to 5%, assuming around 10% increase in bunker fuel costs is fully passed on; longer voyage time and the associated freight costs; increased insurance premiums ranging from 0.1%-0.5%; and additional costs such as war insurance premium, which have historically spiked during such supply chain disruptions. Overall, logistics costs of imports and exports are likely to increase, though volumes are unlikely to be affected based on past experiences," said Prashant Tarwadi, director, India Ratings & Research.

India's import dependency

With India's significant import dependency on crude oil (approximately 88%-90%) and the strategic importance of the Strait of Hormuz, which accounts for 50% of India's crude oil imports, the primary risk to corporations arises from a potential oil supply shock leading to a spike in crude oil prices. Following the attack on Iran, Brent crude prices surged to $77-$80 per barrel as on March 2, 2026.

Ind-Ra pointed out that rising commodity costs impacting corporate profit and loss statements could affect sectors such as paints, chemicals, aviation, and oil refineries. However, the impact on the chemical sector will depend on the specific spreads and demand-supply dynamics due to the diverse nature of chemicals. Conversely, sectors like defence may benefit from increased order flows.

India’s overall export exposure to West Asia remains largely insulated, with GCC countries contributing only 13% to India's total exports during the first nine months of fiscal year 2026. Risks are concentrated in a few countries and specific export items. The UAE is the second-largest export destination for India (and the largest among GCC countries), accounting for $29 billion (8.7%) of total exports, followed by Saudi Arabia, which represented $8 billion (2.4%) of total exports during the same period. Key export items to GCC countries include gems and jewellery, mineral fuels and oils, electrical equipment, and industrial machinery, which together account for 50% of exports to the region.