OPINION | West Asian turmoil ripples through India’s macro and sectoral outlook

Prolonged disruptions in West Asia can weigh on volumes and profitability.

The escalation of geopolitical tensions in West Asia following the US–Israel strikes on Iran has emerged as a key downside risk for India’s macroeconomic outlook and several trade‑linked sectors. Iran’s response, including disruptions in the Strait of Hormuz, has affected a key global shipping route that is vital for India’s imports and exports. West Asia is deeply embedded in India’s trade matrix, accounting for around 14% of exports and nearly 20% of imports. Any prolonged disruption in this region could therefore have second‑order ramifications well beyond just the price of crude oil, impacting logistics‑intensive and energy‑dependent industries in India.

Macroeconomic impact: A sustained rise in crude oil prices remains the most significant risk to a variety of Indian macros. As per ICRA’s estimates, every $10 per barrel increase in the average crude price could enlarge the net import bill by $14-16 billion and widen India’s current account deficit by 30–40 basis points. Elevated energy prices also risk pushing up wholesale inflation more sharply than consumer inflation, given the higher weight of fuel in the WPI basket, even as the extent of increase in the pump prices of fuels remains to be seen. If high crude prices persist, they could strain fiscal balances through higher subsidy requirements, lower dividends from oil marketing companies and potentially squeezed corporate tax collections. Further, they could dampen consumption demand, and pose downside risks to India’s real GDP growth outlook for FY2027, even as the higher inflation would buffer the nominal GDP expansion.

Airlines: With aviation turbine fuel prices rising alongside a weakening rupee, Indian airlines face the risk of deeper losses than earlier expected. As 15–20% of industry revenues are linked to flights through West Asian airspace, disruptions have already led to revenue loss and higher costs due to longer routings, additional airport charges and increased fuel burn.

Basmati rice: Basmati rice exports are particularly vulnerable, with nearly three‑quarters of Indian shipments destined for West Asian markets. Port delays, shipment halts and higher freight costs have forced exporters to adopt a cautious, wait‑and‑watch approach.

Ceramic tiles: Indian ceramic tile manufacturers are facing a dual challenge—softening exports to West Asia and rising energy costs amid challenging availability. Power and fuel costs constitute 22-25% of total production costs, with coal and natural gas accounting for 40-60% of this component. Disruptions to gas supplies and price spikes are squeezing margins. Smaller players are more exposed, while larger manufacturers may rely on inventory buffers in the near term.

Gems and jewellery: West Asia, particularly the UAE, is a key hub for India’s cut and polished diamond trade. While large‑scale order cancellations have been avoided so far, air‑cargo delays underscore the sector’s vulnerability to prolonged disruptions. As Q1 is seasonally weak and stocking begins only from July, the industry can absorb near‑term shocks. However, an extended conflict could disrupt supply chains for Indian CPD players.

Oil & gas: Higher crude prices are a clear positive for upstream oil producers, boosting profitability and supporting capex plans. In contrast, downstream oil marketing companies face margin pressures and rising LPG under‑recoveries if retail fuel prices are not adjusted. Sustained high crude prices could also lower dividend payouts to the Government and add to fiscal pressures.

Gas utilities and CGD: Gas utilities face rising Liquefied Natural Gas (LNG) prices and supply uncertainty, particularly for industrial and commercial consumers. City gas distribution players are increasingly reliant on LNG, especially in the Compressed Natural Gas (CNG) segment, making margins vulnerable if high prices persist. The industry will face headwinds in the near term as LNG supplies have been disrupted and pricing for any incremental spot LNG procurement remains elevated. Domestic Piped Natural Gas (PNG) supplies remain relatively protected, but prolonged disruptions could affect availability and affordability for transport and industrial users.

Fertilisers: The fertiliser sector faces unprecedented challenges, given its dependence on West Asia for key inputs such as urea, ammonia and sulphur. Sharp increases in global input and fertiliser prices could strain availability ahead of the agricultural season. Unless subsidy rates are revised, profitability of domestic manufacturers may come under pressure, while the Government’s fertiliser subsidy bill could rise materially.

Hospitality: Unlike trade‑exposed sectors, hospitality appears relatively insulated. With domestic travel forming the backbone of demand and limited dependence on tourists from West Asia, the sector is expected to weather this disruption. In fact, reduced outbound travel to the region could redirect leisure demand towards domestic destinations.

Shipping, textiles, tea and tyres: Shipping companies are seeing tanker rates and insurance premiums surge amid rerouting and longer transit times. Further, export‑oriented sectors such as textiles, tea and tyres face higher logistics costs, margin pressure from crude‑linked inputs and potential shipment delays. While West Asia is not the largest market for all these sectors, prolonged disruptions could still weigh on volumes and profitability.

The overall impact of the West Asian crisis on India’s economy and sectors will critically depend on the duration and intensity of the conflict. While short‑term disruptions may be absorbed through buffers and diversification, a prolonged escalation would certainly amplify macroeconomic stress and sector‑specific challenges.

(Aditi Nayar, Chief Economist, Head- Research & Outreach, ICRA.)

Views are personal, and do not represent the stance of this publication.