The ongoing military conflict involving the United States, Israel, and Iran is causing serious disruptions in the Strait of Hormuz, an important sea route for global oil and cargo shipments. This narrow waterway is extremely important for India because a large portion of the country’s imports and exports pass through it.
Experts say the conflict could create several challenges for India’s trade. These include higher freight costs, delays in shipments, and uncertainty in energy supplies. The disruption in shipping routes is making transportation more risky and expensive for companies that rely on trade with countries in the West Asian region.
According to an analysis by ICRA, a $10 per barrel increase in crude oil prices during the year could increase India’s Current Account Deficit (CAD) by around 30–40 basis points. The CAD measures the difference between a country’s total imports and exports, and a higher deficit can put pressure on the economy.
Higher oil prices can also lead to rising inflation in the country. This could affect both the Consumer Price Index (CPI) and the Wholesale Price Index (WPI). However, the impact on consumer inflation will depend on how much of the increased oil cost is passed on to people through higher fuel prices.
If fuel prices rise significantly, it could increase the cost of transportation and production across many industries. This may eventually reduce consumer spending and overall demand in the economy, which could slow economic growth.
The conflict is also disrupting major shipping routes used for trade with West Asian countries. India depends heavily on this region for crude oil and liquefied natural gas (LNG) imports, making the country particularly vulnerable to supply disruptions.
On the export side, several important sectors are already facing difficulties. Shipments of apparel, rice, and gems and jewellery are experiencing delays and higher logistics costs due to shipping disruptions. Goods that need quick delivery, such as perishable food items, and large bulk shipments are among the most affected.
Experts warn that if tensions continue for a longer time, the situation could increase trade costs, affect energy supplies, and create more pressure on India’s economy.