KEY POINTS
- Iran–Israel war may raise shipping, insurance, and oil costs for India.
- India urges peace while keeping strong ties with both nations.
- Government is closely monitoring trade routes and energy supplies.
Freight and Insurance Costs May Increase
- Due to the Iran-Israel war, shipping costs and insurance charges are expected to rise.
- Though Indian trade routes are not directly in the conflict zone, higher global risk could affect costs overall.
- Exporters are worried that this could make Indian goods more expensive in international markets.
Red Sea Trade Route at Risk Again
- Last year, Houthi rebels attacked ships in the Red Sea, forcing ships to avoid the route.
- Recently, around 30% of vessels have started using it again.
- But now, due to Israel’s attack on Houthi military leaders, tensions are rising again, threatening trade through this route.
- This route is important for India’s exports to Europe, North Africa, and the US. About 30% of India’s westbound exports go through here.
Commerce Ministry to Meet Exporters
- The Indian Commerce and Industry Ministry will hold a meeting with exporters and shipping companies this week.
- The aim is to assess the situation and prepare for any problems in trade and shipping routes.
- Government officials have said that so far, there is no immediate disruption in shipments.
Threat of the Strait of Hormuz Being Blocked
- Iran has threatened to close the Strait of Hormuz in retaliation for Israeli attacks.
- This is a narrow but very important waterway through which 20–30% of global oil trade passes.
- For India, it is even more critical:
- Nearly two-thirds of India’s crude oil and half of its LNG (liquefied natural gas) imports pass through this strait.
- Any military disruption or closure would hit India’s energy supply, increase oil prices, and cause inflation.
India’s Trade Exposure to Iran and Israel
According to the Global Trade Research Initiative (GTRI):
- In FY25, India exported $1.24 billion worth of goods to Iran, and imported $441.9 million from Iran.
- India exported $2.15 billion to Israel and imported $1.61 billion from Israel.
- This means both countries are important trading partners, but more than that, the entire West Asian region is vital for India’s energy and trade routes.
Economic and Fiscal Challenges for India
GTRI Founder Ajay Srivastava said that if the Strait of Hormuz is blocked:
- Oil prices could shoot up.
- Shipping and insurance costs would rise.
- The Indian rupee could weaken.
Inflation would go up.
- It would become difficult for the Indian government to manage the economy.
Goldman Sachs Prediction on Oil Prices
- If Iranian oil exports drop by 1.75 million barrels per day, oil prices could rise sharply.
- Even if OPEC+ increases supply from its reserves, oil prices like Brent could go above $90 per barrel, before falling later to the $60s by 2026.
Impact on RBI and Inflation
- Retail inflation in India fell to 2.82% in May 2025, a 75-month low, mainly because of lower prices of food items like fruits, cereals, and pulses.
- The RBI responded by cutting the repo rate by 50 basis points to support growth.
- But the RBI warned that it doesn’t have much more room left to cut rates further if inflation comes back due to rising oil prices.
Shipping Advisory Issued by Indian Authorities
- The Directorate General of Shipping issued a warning on Friday to all Indian ships and seafarers.
- It asked Indian ships near Iranian ports or passing through the Strait of Hormuz to be extra careful.
- They were told to follow local safety rules, avoid unnecessary movement, and stay alert.
Oil tanker owners reluctant to brave Strait of Hormuz, Frontline chief says
- Frontline has paused contracts through the Strait due to security risks; vessels will travel in escorted convoys.
- Signals potential long-term rerouting, higher insurance, and security costs.
How an escalating Iran–Israel conflict can threaten India’s growth
- India’s exports to Iran ($1.24 bn) and Israel ($2.15 bn) in FY25 are under pressure.
- Routes via the Red Sea and Hormuz are at risk, boosting freight and insurance costs.
India’s relationships with Israel and Iran
India-Israel Relations
1. Israel and India seek trade pact in 2025…
- Bilateral trade reached $5 billion in 2024: $2.5 B from Israel to India and $1.5 B from India to Israel, plus $1 B in diamonds.
- Israel is among India’s top military suppliers, with cooperation in water tech, agriculture, and cybersecurity.
- FTA expected to triple trade to nearly $20 B by 2030.
2. India & Israel vow to expand trade, defence ties
- Signed a mobility pact enabling ~42,000 Indian workers to move to Israel.
- Agreed to enhance regional connectivity, trade, and defence.
3. Partners in power: Israel, India and the arms trade
- India–Israel defence started covertly in the 1960s; officially tied in 1992.
- Evolved into co-development (e.g., Barak-8 missile).
- Shared ideological affinity around strategic sovereignty.
4. Sea shield activated: How Israel’s navy used India-developed missile tech…
- Israel intercepted Iranian drones using the Barak Magen system, co-developed with India.
- Highlights deep technology transfer and defence collaboration.
India–Iran Relations
1. India, Iran discuss development of Chabahar Port…
- During Jan 2025 Foreign Office Consultations, India and Iran agreed to jointly develop Chabahar Port.
- Discussions included agriculture, trade expansion, energy cooperation, and resuming Iranian crude imports.
2. NSA Ajit Doval, Iranian counterpart discuss bilateral ties”
In May 2025, India’s NSA Doval and Iran’s Ahmadian discussed regional security, Chabahar Port, and the International North‑South Transport Corridor (INSTC).
Global Reactions to the Iran–Israel Conflict
France – President Macron
- Opposes military action aimed at regime change in Iran, fearing destabilisation akin to Iraq or Libya.
- Advocates for diplomacy and international oversight of Iran’s nuclear program, opposing U.S. military ultimatums.
Russia & Turkey
Presidents Putin and Erdogan jointly condemned Israeli attacks on Iran, urging immediate cessation of hostilities and advocating political solutions.
Greece, Guatemala, others
- Greece’s PM Mitsotakis calls for diplomacy and de-escalation.
- Guatemala expressed serious concern, warning of global ramifications.
- Additionally, several countries explicitly affirmed Israel’s right to self-defense while urging restraint.
G7 expresses support for Israel, calls Iran source of instability.
The Group of Seven nations expressed support for Israel in a statement issued late on Monday and labeled its rival Iran as a source of instability in the Middle East, with the G7 leaders urging broader de-escalation of hostilities in the region.
United States (Trump administration)
President Trump demanded Iran’s “unconditional surrender,” suggested evacuation of Tehran, authorized U.S. forces to intercept missiles, and affirmed military backing for Israel while calling for diplomacy.
United Kingdom (Guterres / UN)
UN Secretary-General António Guterres, along with UK, urged both sides to show “maximum restraint” and avoid deeper escalation.
India
Expressed “deep concern” and urged both nations to exercise restraint; India distanced itself from the SCO’s condemnation of Israel, highlighting its careful diplomatic stance.
United Nations
UN broadly condemned military escalation of the conflict, calling for immediate diplomatic efforts and de-escalation to maintain regional stability.
Indian Express
India’s Stand: Neutral and Strategic
India’s Ministry of External Affairs (MEA) said:
“We are deeply concerned about the escalating tensions between Iran and Israel. We call upon all sides to exercise restraint and return to the path of diplomacy.”
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