India faces multi-front impact amid escalating Israel-Iran conflict

As tensions between Israel and Iran escalate into full-fledged conflict, India is closely monitoring the unfolding situation and its potential ramifications on the country’s economy, energy security, and regional connectivity.The Indian government is holding daily meetings and drawing up contingency plans, especially in case the strategically vital Strait of Hormuz is closed—a scenario that could disrupt energy supplies.

Energy Security Under Watch
About 40% of India’s crude oil imports and 54% of its liquefied natural gas (LNG) supplies pass through the Strait of Hormuz, making it a critical artery for India’s energy needs. While the government currently maintains that there is no immediate negative impact on oil prices or supplies, and asserts that India’s reserves are sufficient, the situation remains fluid.Rising Freight and Shipping Costs

Exporters are already feeling the strain. Air freight rates have surged by 10-15% in recent days, driven by escalating tensions and resulting airspace closures over Pakistan, Iran, and Israel. Shipping costs are also expected to rise, with companies anticipating war surcharges, higher insurance premiums, and increased fuel costs.
Export Demand and Trade ChallengesIndian exporters are bracing for reduced demand from Iran, a key market for commodities like basmati rice, soybean, and tea. Discussions between exporters and the government are underway to evaluate the situation and strategise ways to mitigate adverse effects.

Setback for Strategic Chabahar Port Project

One of the most significant repercussions may be on the development and operations of the Chabahar port in Iran, a critical hub in India’s regional connectivity strategy. The port serves as a vital link to Afghanistan, Central Asia, and the Middle East, bypassing Pakistan.

The conflict has disrupted progress on the port’s expansion and the associated railway line project intended to connect India with Central Asia and beyond. Sources indicate that these setbacks could delay India’s broader ambitions of enhancing trade and influence in the region.

Humanitarian Concerns

India also maintains strong people-to-people ties with Iran, with an estimated 10,000 Indians residing there, including around 4,000 students. The government has been actively evacuating its nationals to safer locations, and many students have already been brought back home. Ongoing hostilities have led to the postponement of examinations and heightened concerns for the welfare of Indian citizens in the region.

The Israel-Iran conflict, thus, is impacting India on multiple fronts—from energy security and trade disruptions to strategic infrastructure projects and humanitarian challenges. While the government is optimistic about managing short-term risks, the evolving situation calls for sustained vigilance and adaptive strategies in the weeks ahead.