A wider regional escalation could threaten India's much larger trade with the broader West Asian region, including Iraq, Jordan, Lebanon, Syria, and Yemen, Global Trade Research Initiative (GTRI)reported
GTRI, an Indian research Group focused on Climate Change, technology and trade, cited experts who said that that the war has already started impacting India's exports to Iran and Israel.
"We are in for big trouble now because of this war. It will have a cascading effect on India's trade with West Asian countries," Mumbai-based exporter and founder chairman of Technocraft Industries India Sharad Kumar Saraf said.
Saraf said that his company is also holding back consignments to both these countries. Technocraft Industries manufactures drum closures, nylon and plastic plugs, capseal closures, and clamps. "There will be a cascading effect of this war," he added.
Another exporter said that Indian traders are already reeling under the impact of the Israel-Hamas conflict and involvement of Yemen-backed Houthis’ attack on shipping vessels in the Red Sea.
Due to that, shipping lines from India were taking consignments from the Cape of Good Hope, encircling the African continent. Now, because of the Iran-Israel war, another key trading route - the Strait of Hormuz - is getting affected.
"This route will hit the movement of oil tankers. I have a feeling that oil tankers will find new routes but that will push crude oil prices. It will have implications on inflation as crude oil prices are the mother of all prices," Saraf said.
"Any disruption to shipping lanes, port access, or financial systems in this corridor would severely impact India's trade flows, inflate freight and insurance costs, and introduce fresh supply chain risks for Indian businesses," GTRI Founder Ajay Srivastava said.
India's exports to Iran stood at $1.24 billion in FY2025, and with Israel, it stood at $2.1 billion and $1.6 billion in imports in 2024-25.
Payment channels already strained by US sanctions may face further blockages, while heightened shipping risks in the Gulf could drive up insurance costs and delay shipments.
GTRI said that a key concern is the potential disruption to the Strait of Hormuz, through which roughly 60-65 per cent of India's crude imports transit.
"Any blockade or military escalation in this vital maritime corridor would severely impact India's energy security, drive up oil prices, and trigger inflationary pressures at home," it added.
India's crude oil and half of its LNG imports pass through the Strait of Hormuz, which Iran has 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 per cent of its energy needs.
According to the Delhi-based economic think tank, 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.
Last year, the situation around the Bab-el-Mandeb Strait, a crucial shipping route connecting the Red Sea and the Mediterranean Sea to the Indian Ocean, escalated due to attacks by Yemen-based Houthi militants.
Around 80 per cent of India's merchandise trade with Europe passes through the Red Sea, and substantial trade with the US also takes this route. Both these geographies account for 34 per cent of the country's total exports.