Trump's air strikes on Iran may put India’s $40 billion trade at risk

Satellite image shows a close up view of buildings at Isfahan Nuclear Technology Center, before it was hit by U.S. airstrikes, in Isfahan, Iran, June 16, 2025. Maxar Technologies/Handout via Reuters

The United States’ strikes on Iran’s nuclear sites over the weekend have raised the stakes for India as well, with over $40 billion worth of trade with key regions of West Asia at risk if the conflict widens further, though New Delhi has less to lose if the war remains contained.

According to Global Trade Research Initiative’s founder Ajay Srivastava, any disruption to shipping lanes, port access, or financial systems in this corridor would “severely impact India’s trade flows, inflate freight and insurance costs, and introduce fresh supply chain risks for Indian businesses.”

The US' involvement in the conflict has raised concerns that Tehran may choose to retaliate by attacking American military bases in the West Asian region such as in Qatar. Apart from that, Iran’s parliament has approved a measure to close the strategically vital Strait of Hormuz, their state-run Press TV reported on June 22. Iran's parliamentary vote is not binding, and a final decision has to be taken by the Supreme National Security Council.

Trade Turmoil?

The latest series of developments may not impact New Delhi’s trade with the Gulf countries, significantly higher at over $220 billion during previous fiscal, rising oil prices and possible disruptions in the Strait of Hormuz as well as the Red Sea could spell trouble for Indian shipments.

India’s bilateral trade with other West Asia countries comprising of Iran, Iraq, Israel, Jordan, Lebanon, Syria and Yemen, at $41.8 billion in FY25. Out of this, with Iran and Israel, India’s trade was only $5.4 billion in the previous financial year.

India is especially vulnerable to a possible Strait of Hormuz closure. “Nearly two-thirds of its crude oil and half of its LNG imports transit this route. Any closure could send oil prices soaring, sharply inflating India’s import bill, worsening inflation, and putting pressure on the country’s fiscal position. Shipping insurance premiums and freight costs are also expected to surge, squeezing not only India’s energy markets but also broader trade between Asia and Europe," Srivastava said.

The Trade Channels

As much as 65 percent of India’s crude oil shipments pass through the Strait of Hormuz. The Red Sea, a key transit route for Indian trade with Europe and the United States, too is at risk. Nearly 30 percent of India’s exports to Europe, North Africa, and the US East Coast transit through the Red Sea's Bab el-Mandeb Strait.

India’s import bill is expected to take a hit, with oil prices inching up since the conflict began on June 13 following Israel's attack on Iran. Brent crude is hovering around $77 per barrel, starkly higher than the $69 per barrel figure before the fight erupted between Tehran and Tel Aviv.

India's oil imports could face a major threat given that West Asia is a key supplier. In March alone, shipments of crude from the region, including the Gulf nations rose 25 percent on-year. The Indian basket of crude oil has already seen prices rise to $69.24 per barrel in June versus $67.73 per barrel in April. Read More

According to Emkay Global Financial Services, every $10 per barrel increase in oil leads to an annualised gain of 35 basis points for India’s consumer price index (CPI) inflation.

India is already looking at alternate sea routes through the East to smoothen trade to and from Europe as well as US, and is considering purchasing more crude oil from Moscow to avoid any possible disruptions in supply.

Petroleum Minister Hardeep Singh Puri on June 22 said that India has diversified its oil supplies in the past few years thereby limiting shipments through the Strait of Hormuz.

At present, threats to India’s current account deficit, inflation and growth are limited despite the rise in crude prices, as long as oil hovers around the $75 per barrel mark, according to experts.

Srivastava said a prolonged closure of the Strait of Hormuz risks triggering a wider military conflict across the Gulf region, with stark geopolitical and economic implications for all major economies, particularly energy-dependent nations like India.

“For New Delhi, the stakes could not be higher. India enjoys deep historical, cultural, and economic ties with Iran, once a major crude oil supplier, and views Iran’s Chabahar Port as a strategic gateway to Afghanistan and Central Asia, providing crucial connectivity while bypassing Pakistan. Yet India also maintains robust relations with the US, Israel, and Gulf Arab states, each now directly or indirectly involved in the unfolding confrontation,” added GTRI’s Srivastava.