Cost of the Iran war for India
The full scale of the fallout, and an assessment of what has been done so far and what more India must do to navigate the crisis the world finds itself in
Three weeks into the Iran war, and the International Energy Agency has already declared that the energy asset disruption in the oil-rich Middle East is equivalent to the two major oil crises of the 1970s and the 2022 natural gas crisis after Russia invaded Ukraine put together. Worse, while the war started on February 28 with Israel and the US combining forces to decapitate Iran’s top leadership and defang its nuclear and missile prowess, it now threatens to include a wider arc of countries and become an all-out regional conflagration. The global economy has already taken a beating, with growth slowing down and inflation soaring, bringing back unhappy memories of the economic freefall that the COVID-19 pandemic triggered six years ago.
Three weeks into the Iran war, and the International Energy Agency has already declared that the energy asset disruption in the oil-rich Middle East is equivalent to the two major oil crises of the 1970s and the 2022 natural gas crisis after Russia invaded Ukraine put together. Worse, while the war started on February 28 with Israel and the US combining forces to decapitate Iran’s top leadership and defang its nuclear and missile prowess, it now threatens to include a wider arc of countries and become an all-out regional conflagration. The global economy has already taken a beating, with growth slowing down and inflation soaring, bringing back unhappy memories of the economic freefall that the COVID-19 pandemic triggered six years ago.
Unlike the ongoing Russia-Ukraine conflict, India is already experiencing the adverse impact of the Iran War. That’s because we import around 85 per cent of our crude oil, with 55-60 per cent coming from the Gulf, and over 40 per cent of this supply transiting through the Strait of Hormuz, the single chokepoint now becoming the heart of the battle. India’s dependence extends to gas: it imports 60 per cent of its LPG; about half of LNG imports also travel via the same route. Beyond energy, the Gulf is central to India’s external balance of payments, with 10 million Indians living and working in the region, and repatriating nearly $50 billion (Rs 4.67 lakh crore) annually, roughly a third of the total NRI remittances. Trade linkages remain equally strong, with the region accounting for about 15–17 per cent of India’s exports, while also supplying key inputs like fertilisers and petrochemicals that feed directly into agriculture and industry. The Iran conflict disrupts all these channels simultaneously. Every $10 rise in crude oil adds roughly $12–15 billion to India’s import bill, exerting pressure on inflation, the rupee and the current account deficit. At the same time, shipping risks through Hormuz raise freight and insurance costs, amplifying price shocks even without fuel supply cuts.
The fallout is already being felt across major sectors. At the macro level, economic growth is likely to slow down under the weight of rising energy costs and inflation. On the ground, LPG shortages and fuel price spikes are hitting households directly, while industry faces higher input costs. The Modi government was quick to step in, diverting commercial supply of LPG cylinders to households, even as prices rose by Rs 60 for every 14.2 kg cylinder and by Rs 142.5 for a 19 kg commercial cylinder. Small eateries and restaurants risk closure and households that rely on the fuel for cooking, too, are feeling the strain.
Meanwhile, exports are being hit. For instance, CRISIL Ratings, which analysed 40 leading ceramic manufacturers accounting for a fourth of the industry’s revenue, estimates export revenue may decline 6–7 per cent (around Rs 1,300 crore) due to the Hormuz Strait closure. India’s plastic exports, valued at $13 billion (Rs 1.21 lakh crore), include 6–7 per cent to the Middle East, which now stands disrupted due to container shortages and rising freight costs.
Agriculture, too, faces a looming crisis. Heavily dependent on fertiliser supply from the Gulf, disruptions could impact the upcoming kharif crop cycle, pushing food inflation further. Financial markets have turned volatile, with investor sentiment weakening and more than Rs 48 lakh crore, or 10 per cent, being wiped out in investor wealth in just three weeks of war. The rupee plunged to an all-time low of 93.87 to a dollar on March 25, making imports more expensive.
Experts also warn of a major backlash of rising oil prices. “The rise in oil price leads to cost-push inflation in the economy,” says Soumya Kanti Ghosh, group chief economic advisor, State Bank of India. “Every $10 increase in the oil price may lead to 35-40 basis points rise in inflation. Higher oil prices may slow down economic growth by 20-25 bps in FY27.” Goldman Sachs has pared India’s GDP growth for FY26 to 5.9 per cent from the 6.5 per cent it had projected earlier.
In response, the Modi government has rapidly moved from reactive measures to structured crisis management. Drawing from the COVID playbook, high-level inter-ministerial groups and monitoring mechanisms have been activated to track fuel supplies, stabilise prices, and secure alternative sourcing where possible. Efforts are under way to prioritise critical sectors such as fertilisers and LPG, manage strategic reserves and cushion vulnerable consumers, alongside diplomatic outreach to keep supply lines open. It promises to be a tough haul to manage the complex, multi-layered crisis affecting energy, economy and external stability simultaneously.
In the pages that follow, we unpack the full scale of the fallout, assess what has been done so far and examine what more India must do to navigate the crisis the world finds itself in.
Supply disruptions are driving up energy costs in India, exposing deep import dependence and raising the risk of prolonged price and supply pressures
Manufacturing and MSMEs | Heading for a slowdown
Manufacturers face rising freight costs, gas shortages and stalled exports, as war tensions play havoc on India's MSME ecosystem
Fertilisers and Agriculture | Urea cloud on Kharif
As fertiliser supply chains tighten and costs surge, risks build for India's farms, threatening output, margins and prices
Healthcare | Caught in an ill wind
The war has impacted everything from drug ingredient costs to medical tourism numbers. There is no reason to panic yet, but the unease is growing
Stock Exchanges | Storm on the bourses
Rising oil prices, continuing geopolitical uncertainty and FPI outflows exact a brutal toll on Indian stock markets
Shipping, Trade and Exports | In dire straits
The Hormuz Strait wrangle has not just upended bilateral trade with one of our top partners, the UAE, but also hit exports to the West
As war disrupts trade and travel routes in West Asia, India's vast diaspora trickles back home, threatened by stalled shipments and falling salaries
Aviation / Travel | Chaos in the skies
Airspace closures and war-risk costs disrupt India's busiest international routes, triggering cancellations, fare shocks and mounting financial stress for airlines
Food & Beverage | That empty feeling
The unprecedented crisis in commercial LPG supply has hit eateries hard. The worst affected are humble hawkers and dhabas
Macro Economy | Bracing for uncertainty
The volatility in oil prices sends India's budgetary calculations awry, but it may yet absorb the shock if the current correction sustains
