Israel-Iran War: India’s Exporters Face New Uncertainties

India Inc., including the exporters, are worried. 

The immediate fallout would be on the logistics sector — the cost of transportation and freight rates will not only surge, but may even cause delay in movement of goods.

Maritime movement of goods has already suffered following the Russia-Ukraine conflict and Israel's war with Hamas.

Geographically, the area from the Strait of Hormuz in the Persian Gulf to the Suez Canal becomes vulnerable, if the conflict escalates to the sea. This route is critical for movement of goods between the western coast of India and West Asia, as well as Europe.

Industry captains have urged the government to de-risk the supply chain while exploring other routes for transporting goods. 

Cargo Movement Already Slowed Down

An analyst based in Ahmedabad said that the Russia-Ukraine conflict, and Israel’s war with Hamas and the Houthi rebels, have already led to slowing of the freight movement. 

Shippers are also using smaller vessels to decrease costs due to a fall in the quantity of goods imported and exported. And now the Israel-Iran conflict — if it drags — will further slow down the trade. 

Since November 2023, movement of goods through the Suez Canal route has been going down. Cargo ships are circumnavigating Africa around the Cape of Good Hope. This has resulted in an increase in shipping costs and delay in delivery of goods. 

Corporate India Closely Monitoring The Situation

"As of now, we have our fingers crossed — it’s a wait-and-watch approach, we will continue to closely monitor the situation," said an official managing international trade at an Ahmedabad-based private company.  

Crude Oil Prices

The Israel Iran conflict is set to push crude oil prices. Hiren Gandhi, the founder, director and secretary of InGlobal Business Foundation (previously known as All India Spices Import Federation) said that rise in prices of petroleum products could create a price rise spiral across commodities. 

India imports more than 85 per cent of its total crude requirement. Iraq, Saudi Arabia and United Arab Emirates (UAE) — all of which fall in this zone of conflict, are the main suppliers of crude for India. 

Global Brent crude price, which was less than US$ 61 per barrel on May 30, shot up to over US$ 74.5 on June 13.

A high crude price would further create challenges for India’s policymakers, as it will push up the import bill, thereby impacting the country’s macroeconomic dynamics, including its fiscal deficit.

Retail prices of fuel may rise by Rs 1-2 per litre within 15-20 days, sources said, if the global crude prices remain high. 

An industry expert told The Secretariat on condition of anonymity that the latest conflict could also affect shipping through the Dubai port, which is a major trans-shipment hub for the countries of West Asia, Europe, Africa and Asia.

However, the transport of goods through Fujairah port on the west coast of UAE may be safer in terms of avoiding the conflict zone. “So, the import of oil to India through this route is possible,” he added. 

Government’s Role 

The analyst said that the role of the government in controlling the prices could be key with the escalation of the conflict. “It can play a critical role in avoiding any price shock for the businesses and ensure efficient routing of the goods. Industry is hoping that the Centre plays a more proactive role."

Exporters opined that New Delhi, which has good relations with both Iran and Israel, should intervene and ask these countries to provide safe passage to ships with Indian flags. 

Goods can also be sent to the Chabahar port in Iran and then through the land route to western countries, the analyst added. 

“If, due to some reasons, the route through the Strait of Hormuz is obstructed, international trade will be severely affected, as over 20 per cent of global transport of crude happens through this route,” he said. 

"More goods may have to be rerouted, which can increase the time of delivery as well as the cost," said Gandhi.