By Suresh Unnithan
It is surprising, the intellectually rich specialists often seen in the Indian television studios and social media platforms educating the viewers with their half-baked expertise on combat strategies are hardly discussing the drastic impact of the escalating Israel-Iran armed conflict.
The on-going Israel-Iran conflict has intensified significantly since it started a week back and a continued war in this strategic region will pose strategic risks to India, primarily through rise in oil prices and also trade disruptions. Trade experts postulate the crude price to shoot up to $200-$300 per barrel in the event of the conflict intensifying. There are already indications of the crude price going north. Similarly in the logistic cost could multiply beyond expectation.
India imports over 80% of its crude oil, with around 44-46% coming from West Asian countries like Iraq, Saudi Arabia, the UAE, and Kuwait. Although India imports marginal crude directly from Iran, thanks to US sanctions, the conflict has already driven global oil prices up by approximately 13% since June 13, 2025.
In fact, Iran was a major supplier of crude to India until US sanctions in 2019. Any escalation in the Israel-Iran conflict could disrupt oil supplies, particularly if Iran blocks the Strait of Hormuz, through which 30-35% of global oil and half of India’s liquefied natural gas (LNG) transits. Brent crude prices have already surged, nearing $78 per barrel in June 2025, with projections of reaching $90-$120 per barrel if tensions escalate further.
On the economic front, a $10 per barrel increase in oil prices could raise India’s Consumer Price Index (CPI) inflation 0.4% and reduce GDP growth by 0.35 %. Higher fuel, LPG, and fertilizer costs would increase food and transport prices, impacting rural households.
India’s oil import bill for FY25 is estimated at $137 billion, approximately 15% of total imports. A $10/barrel price hike could increase the CAD (current account deficit) by 0.35% of the GDP, hurting India’s trade balance. For every $10 per barrel rise in crude India’s import bill could go up by $12-13 billion annually. Higher oil prices could increase dollar demand, weakening the Indian currency, which further inflates import costs and worsens the CAD.
The escalating Israel-Iran conflict threatens key maritime routes like the Red Sea and Suez Canal, critical for India’s $400 billion annual trade with Europe, the US, Africa, and West Asia. Houthi attacks and potential closure of the Strait of Hormuz could force ships to reroute via the Cape of Good Hope, adding 2-3 weeks to transit times and increasing shipping costs 60%. Insurance premiums have already risen by 35%. Indian exports, including engineering goods, textiles, chemicals, and basmati rice (with Iran as the third-largest buyer), could face delays and cost hikes. Exports to Iran, valued at $1.2 billion in 2024-25, including $6,374 in basmati rice, may decline, potentially lowering rice prices domestically.
The armed conflict has adversely affected Indian companies with ties to Israel, such as Adani Ports (operator of Haifa Port which was heavily pounded by Iranian missiles), Sun Pharma, Dr. Reddy’s, TCS and Lupin.
Bilateral trade with Israel has dropped from $10.77 billion FY 23 to $6.53 billion in FY24 due to regional instability. The on-going conflict could worsen this. Higher fuel costs and airspace closures increase ticket prices, impacting travel affordability, especially during festive seasons.
However, India’s robust foreign exchange reserves ($698.95 billion) and low inflation (2.82%) provide a buffer against short-term shocks.
Nevertheless, a prolonged conflict could dampen global investor sentiment, disrupt monetary easing cycles, and slow India’s economic momentum. If the conflict escalates into a broader regional war involving the U.S. or other powers, the economic and strategic fallout for India could be severe, including potential disruptions to global trade and energy supplies.
Still, a swift de-escalation or ceasefire, possibly facilitated by global powers like the US, Russia or China, could limit the impact on India, allowing trade and connectivity projects to resume.