West Asia escalation deepens India’s trade woes, keeps exporters on the edge

Exporters fear that a prolonged conflict could disrupt key trade routes

• West Asia tensions may disrupt India's major trade routes
• Freight, insurance costs, and energy prices could rise sharply
• Conflict endangers exports to UAE and Saudi Arabia

Did our AI summary help?

India’s trade sector, which has been navigating one global disruption after another since the pandemic and the outbreak of the Russia-Ukraine war, is now bracing for fresh turbulence as tensions escalate in West Asia.

Exporters and energy-dependent industries warn that a prolonged or wider conflict involving the United States, Israel and Iran could disrupt key trade routes, push up freight and insurance costs, and trigger renewed volatility in energy markets.

Live updates: West Asia conflict

Pankaj Chadha, Chairman of EEPC India, described the situation as “quite worrying” for the exporting community. For engineering goods, Saudi Arabia and the United Arab Emirates are among India’s key markets and also serve as a gateway to exports to the wider WANA (West Asia and North Africa) region.

The UAE also got embroiled in the conflict as Iran’s retaliatory strikes extended beyond the US and Israel over the weekend, raising fears of a wider regional spillover.

For India, this is significant because the UAE is not only a major export destination but also a key trans-shipment and gateway market for the wider West Asia region.

“The war seems to be escalating, which could not only disrupt engineering exports to this region but may also affect some of the trade routes,” Chadha said.

The possible blocking of the Strait of Hormuz is particularly concerning since it accounts for roughly one-fifth, or around 20 percent, of global oil passes, making it the world’s most critical oil transit chokepoint.

SC Ralhan, President of the Federation of Indian Export Organisations, said the ongoing conflict has already begun to disrupt established global logistics channels. Air routes are being altered, and maritime trade through the Red Sea and key Gulf straits faces heightened uncertainty.

“If diversions become prolonged, shipments may increasingly have to reroute via the Cape of Good Hope, adding an estimated 15–20 days to transit time for Europe and the United States,” he said, noting that this would inevitably raise freight costs and stretch supply chains.

Heightened geopolitical risk also typically results in higher marine insurance premiums, further adding to transaction costs for exporters.

A prolonged disruption could exert upward pressure on global energy prices, with consequential implications for input costs and currency stability, including pressure on the rupee, FIEO observed.

Rising energy costs are emerging as a key concern for corporate India.

According to Sehul Bhatt, Director at Crisil Intelligence, developments in the Middle East could increase pricing and procurement risks for crude oil and liquefied natural gas (LNG), posing substantial challenges for India, which has more than 85 percent and 50 percent import dependency, respectively, in these commodities.

Crude oil prices have already jumped above $75 per barrel in the past two days and surged further on Monday. If geopolitical issues ease, prices are expected to average $65 to $70 in 2026, but prolonged conflict could push them higher.

While Iran supplies 4.5 to 5 percent of global oil, the main concern is disruption at the Strait of Hormuz, which is vital for almost half of India’s imports of crude and LNG. If disruptions persist, shipments may be rerouted via the Cape of Good Hope, lengthening transit times and increasing costs along with rising freight and insurance premiums.

The textile sector is also watching developments closely.

Chandrima Chatterjee, Secretary General of the Confederation of Indian Textile Industry, said a significant portion of textile and apparel exports is headed for West Asia.

The UAE is India’s third-largest trading partner overall and its second-largest export destination, with trade booming under a trade deal between them.

“While it is too early to quantify the impact, given the evolving situation, we are looking forward to an early resolution and normalcy prevailing,” Chatterjee said.

FIEO’s Ralhan noted that while Indian exporters have demonstrated resilience in navigating past disruptions, sustained instability in these critical trade corridors would warrant close monitoring and calibrated policy support to maintain competitiveness.

The latest conflict represents another test in a prolonged phase of global uncertainty for Indian exporters.

“We have already been reeling under tariff pressure from the US and the after-effects of the Russia-Ukraine war. The latest development adds to our concerns and may affect our exports badly,” Chadha added.