The government has asked shipping companies to keep a lookout for alternate routes amid concerns that the escalating conflict between Iran and Israel could disrupt trade through the Strait of Hormuz, a choke point which handles one-fifth of the world's total oil supply.
This directive was issued in a meeting on June 20 chaired by Commerce Secretary Sunil Barthwal with shipping lines and container firms, among others to assess the impact of the Iran-Israel conflict on India's trade, sources said.
Industry participants warned that escalated tensions could disrupt vital shipping routes such as the Strait of Hormuz and the Red Sea, both pivotal for global oil trade and India's energy imports. Industry analysts from Global Trade Research Initiative (GTRI) emphasize that any blockade or military action in these regions could lead to skyrocketing oil prices, heightened shipping costs, and increased insurance premiums.
According to sources, specifically, Indian exports to Europe, US and to a certain extent to South America may get impacted if the flow of goods through the Strait of Hormuz is disrupted or if Iran implements its repeated threat of closing the route.
While the Iran-Israel war, which began on June 13, hasn't yet had a direct impact on India's trade or disrupted crude supplies from the Middle East, shipping and insurance costs have risen for oil refiners.
Refinery executives told Moneycontrol on June 16 that they are experiencing an 8-9 percent increase in costs for shipping crude to India from the Middle East region. Around two-thirds of India's crude oil and half of its LNG imports pass through the Strait of Hormuz.
Stakeholders also raised concerns to the central government that if the conflict widens then the "already sensitive" route of Red Sea may get impacted too.
"Commerce ministry asked shipping lines to keep monitoring the situation around Suez Canal and in case of any escalation look for alternate routes for Indian exports to Europe," one of the sources said.
The GTRI had warned earlier any disruptions to the Strait of Hormuz could lead to a sharp spike in oil prices.
"The government must urgently review energy risk scenarios, diversify crude sourcing, and ensure strategic reserves are sufficient," it said, highlighting the need for stronger military preparedness in the Arabian Sea, especially around vital sea lanes and choke points.
The conflict's impact could be further magnified by already strained global trade conditions following US tariff hikes. While India's overall exports rose 6 percent to $825 billion in 2024-25, its trade with Israel and Iran has significantly declined, posing challenges to India's economic stability amidst global uncertainties.
According to official trade data, in FY25, India exported goods worth $1.24 billion to Iran and imported goods worth $441.9 million. Indian exports to Iran stood at $5.43 billion in 2013. However, due to US sanctions against the country, direct exports have been declining. Some of the important items shipped to Iran include cereals, animal fodder, fruits, coffee, tea and spices, machinery, and pharmaceutical products.
Similarly, trade with Israel is also substantial, with $2.15 billion in exports and $1.61 billion in imports. The items exported by India to Israel include polished diamonds, jewellery, consumer electronics and engineering goods.
Earlier this week, Moneycontrol had reported that India’s oil refiners are sourcing more oil from Russia and the US in June to mitigate supply-related risks in the Middle East, at a time of military conflict between Iran and Israel and rising rhetoric by US President Trump, with imports from Saudi Arabia and Iraq having fallen this month.
India is set to import a total of 2.16 million barrels per day (bpd) of Russian oil in June - highest in last two years - preliminary data by global trade analytics firm Kpler showed, sharply higher than at 1.85 million bpd purchase in May.
The domestic crude oil imports from the US stands at 439,000 bpd in June, a big jump of almost 66 percent from a month ago, when it supplied 265,000 barrels of oil.
India imports around 40 percent of crude oil from Russia, 40 percent from Middle East countries including Saudi Arabia, Iraq, the UAE, Kuwait, among others. Remaining oil supply comes from the US, West African nations and some other suppliers.
Brent crude prices fell significantly by nearly $2 on June 20 after the White House postponed its decision regarding US involvement in the ongoing Israel-Iran conflict.
Brent futures also decreased $1.89, or 2.4 percent, to $76.96 per barrel by 0255 GMT. Despite this drop, prices are poised for a third consecutive week of gains, with a 3.8 percent increase over the week. The US West Texas Intermediate (WTI) crude for July showed a slight rise, up 53 cents or 0.7 percent to $75.67, while the more liquid WTI for August increased slightly by 17 cents to $73.67.
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