Collateral Risks Outweigh Bilateral Trade Exposure For India

As the Israel-Iran conflict intensifies, India is increasingly at risk of collateral economic fallout, with energy security, trade routes, and key commercial interests facing growing uncertainty. The escalating hostilities, along with rising regional tensions, are posing direct threats to India’s strategic and economic links with West Asia.

India has significant trade exposure to both warring nations. In 2024–25, India exported goods worth $1.24 billion to Iran and imported $441.9 million in return. Trade with Israel was even more substantial, with $2.15 billion in exports and $1.61 billion in imports. Still, more critical than these bilateral flows is India’s reliance on the region for energy: nearly two-thirds of its crude oil and half of its LNG imports pass through the Strait of Hormuz, which Iran has now threatened to close. This narrow waterway, only 21 miles wide at its narrowest point, handles nearly a fifth of global oil trade and is indispensable to India, which depends on imports for over 80% of its energy needs.

Any closure or military disruption in the Strait of Hormuz would sharply increase oil prices, shipping costs, and insurance premiums, triggering inflation, pressuring the rupee, and complicating India’s fiscal management.

The risks became even more immediate on 15 June, when Iran fired missiles at Israel’s Haifa port, a facility handling over 30% of Israeli imports and 70% owned by India’s Adani Ports. Initial reports indicate damage to port infrastructure and nearby refineries, raising fears of disrupted logistics and a spillover of conflict into Indian commercial operations.

Meanwhile, Israel’s 14–15 June strike on Houthi military leadership in Yemen has heightened tensions in the Red Sea region, where Houthi forces have already attacked commercial shipping. For India, this poses another serious risk. Nearly 30% of India’s westbound exports to Europe, North Africa, and the US East Coast travel through the Bab el-Mandeb Strait, now vulnerable to further disruption. If shipping must be rerouted around the Cape of Good Hope, transit times could rise by up to two weeks, and costs could soar. This would directly impact Indian exports of engineering goods, textiles, and chemicals, while also raising input costs for key imports.

India, though not a party to the conflict, cannot afford complacency. The government must urgently review energy risk scenarios, diversify crude sourcing, and ensure strategic reserves are sufficient. Military preparedness in the Arabian Sea, especially near choke points, must be enhanced. At the diplomatic level, India should use multilateral forums such as the G20 and the United Nations to advocate for de-escalation and the protection of global trade corridors.

Rising Lion
Israel’s launch of “Operation Rising Lion” on 13 June, deploying over 200 aircraft and Mossad-led drone strikes targeting Iran’s nuclear and military assets, has triggered a fierce Iranian response. More than 150 ballistic missiles and drone swarms have since struck Israeli cities, including Tel Aviv and Jerusalem, with casualties mounting and fears of broader escalation intensifying. Diplomatic efforts have collapsed, with the cancellation of US–Iran nuclear talks in Oman, and regional markets are reeling.

China and Russia have condemned Israel’s actions, urging restraint and calling for diplomatic solutions. Beijing described Israel’s strikes as violations of Iranian sovereignty, while Moscow positioned itself as a potential mediator. The United States, while reaffirming Israel’s right to self-defence, has also pressed both parties to de-escalate. Yet with both sides vowing to continue unless the other halts, the conflict shows little sign of abating.