India Faces Economic Risks from Middle East Tensions
India’s economy is under significant threat due to the ongoing US-Iran conflict, as the instability in the Middle East could lead to severe disruptions in essential supplies. Recent missile and drone attacks have targeted key energy and logistics infrastructure across the Gulf region, raising concerns about the stability of oil and gas shipments through the strategically important Strait of Hormuz.
In 2025, India imported approximately $70 billion worth of crude oil and petroleum products from West Asia, making this the primary area of concern for policymakers and economists alike. As tensions mount, especially between the US and Iran, the potential for ongoing or escalated conflict looms, which could have ripple effects throughout various sectors of the Indian economy.
Background and Importance of Oil Supplies
The Strait of Hormuz is one of the world’s vital waterways, through which a significant portion of global oil supply passes. Disruptions here could not only drive oil prices higher but also increase transportation and logistics costs across the board. “India has about 30 days of oil stocks. Any long-term disruption in supplies could push fuel prices higher, impacting inflation and agriculture,” explained Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI).
The importance of West Asia extends beyond oil; India’s total imports from the region reached about $98.7 billion in 2025, encompassing vital commodities like energy, fertilizers, and industrial materials. As tensions escalate, the impact on these sectors could profoundly affect economic stability.
Sector-wise Impact of Potential Disruptions
Energy Sector Vulnerabilities
The energy sector is most immediately affected by the ongoing crisis. In addition to crude oil, India sources a significant portion of its liquefied natural gas (LNG) imports from the region, which amounted to around $9.2 billion in 2025, representing approximately 68.4% of total LNG imports. LNG is crucial for power generation, fertilizer manufacturing, and city gas distribution.
There have already been signs of this vulnerability materializing. For instance, Qatar’s Petronet LNG recently halted LNG deliveries to GAIL due to restrictions on vessel movements caused by escalating tensions in the Gulf. A long period of disruption may lead to shortages affecting both domestic and industrial users.
LPG and Cooking Fuel Supplies
Liquefied petroleum gas (LPG) is also under threat, with imports from West Asia totalling $13.9 billion in 2025. This accounts for roughly 46.9% of India’s total LPG purchases, which millions of households rely on as their primary cooking fuel. With reserves in hand only for about two weeks, any interruptions could quickly lead to a shortage of cooking gas, impacting daily life for many.
Agricultural Sector Impacts
The agricultural sector could feel the pinch due to disruptions in fertilizer imports, which stood at $3.7 billion from West Asia in 2025. Any significant supply interruption during critical crop cycles could limit fertilizer availability, inflate government subsidy costs, and ultimately spike food prices. In light of the dual pressures from higher input costs and lower agricultural output, farmers may find themselves in a precarious position.
Diamond Industry and Employment Risks
India’s diamond industry is particularly susceptible to disruptions due to its reliance on the flow of rough diamonds from the Middle East. In 2025, India imported diamonds worth $6.8 billion from the region, representing approximately 40.6% of its total diamond imports. Interruptions to these supplies could hamper manufacturing in India’s prominent cutting and polishing centres, particularly in Gujarat’s Surat, leading to potential job losses in the jewellery sector.
Industrial Raw Materials and Manufacturing
India’s manufacturing sector is also at risk due to its dependence on industrial inputs from the Gulf region. For instance, approximately $1.2 billion worth of polyethylene polymers, critical for products like packaging materials and agricultural films, were imported from West Asia in 2025. Furthermore, the construction sector relies on mineral imports, including limestone valued at $483 million in the same year, an essential component in cement production.
A shortage in such critical inputs would naturally lead to increased production costs, further slowing infrastructure development efforts across the country.
Impact on the Metals Sector
The metals industry could see similar disruptions due to dependence on imports from the Gulf. For example, India imported direct reduced iron valued at around $190 million and copper wire worth $869 million from the region in 2025. Interruptions in these supplies could hinder not just manufacturing capabilities but also impact power generation and renewable energy projects.
Concluding Remarks on Broader Economic Implications
The interconnectedness of India’s economy with West Asian supply chains underscores the potential fallout from ongoing tensions. Experts highlight that if disruptions in shipping through the Strait of Hormuz continue beyond a week, the repercussions could quickly escalate from energy markets to fertilizer supplies, as well as manufacturing inputs and construction materials.
As the GTRI report noted, what starts as a regional conflict could rapidly evolve into a broader economic crisis, affecting multiple sectors and undermining economic stability. The government is advised to take precautionary measures to mitigate this risk and prepare for possible supply chain disruptions.
In the coming weeks, policymakers will need to closely monitor developments in the Middle East and assess the risk to supply chains closely linked with India’s economic health. Their responses could determine the level of resilience the Indian economy can exhibit amid potential global challenges.
Looking Ahead: Policy Recommendations and Government Action
In light of the potential challenges facing Indian markets, experts recommend strategic actions such as diversifying import sources and enhancing domestic production capabilities. By investing in alternative supply chains and strengthening local industries, India could reduce its vulnerability to geopolitical tensions.
Additionally, fostering better relations and securing trade agreements with other oil-exporting nations can also serve as a buffer against shortages caused by conflicts in the Gulf region. Enhanced diplomatic engagement will be crucial in navigating future uncertainties.
Overall, ongoing geopolitical tensions further complicate an already delicate global economic environment. As India continues to navigate these challenges, swift and informed policymaking will be crucial for maintaining economic stability.