As tensions escalate between Iran and Israel following the June 22 US bombing of Iranian nuclear sites, India Inc is preparing for a period of increased uncertainty and rising costs. This would be marked by rising shipping costs, elevated crude prices and squeezed profit margins. According to a report by CareEdge Ratings, the intensifying conflict in West Asia has heightened fears of disruptions to key maritime trade routes, particularly the Strait of Hormuz, a critical channel for global oil and gas shipments.
Even though India does not import oil directly from Iran, a significant share of its crude oil imports and its liquefied natural gas (LNG) supplies pass through the Strait of Hormuz. Any disruption in this region by Iran could impact supplies from Iraq, Saudi Arabia, and the UAE, which are the key oil exporters to India. And this, CareEdge said, ultimately could spike global oil prices and pressure India’s inflation rate and fiscal balance.
It is worth noting here that the Strait of Hormuz and the Red Sea together account for around one-third of the country’s total exports.
Energy dependence risk
India’s share of imported crude oil in total crude processing is around 85-90 per cent. As per the Centre for Monitoring Indian Economy Pvt Ltd (CMIE), out of the overall crude oil imports by India, around 40-45 per cent of crude oil is imported from the UAE, Saudi Arabia, Kuwait, and Iraq.
Things to know about the Strait of Hormuz
The Strait of Hormuz, extending 90 nautical miles (167 km) between Oman and Iran, is a vital maritime corridor connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea. At its narrowest point, it is only about 21 miles (33 kilometres) wide and 55 miles (88 kilometres) at its widest point. However, the actual navigable channel for ships is just a few kilometres wide in each direction, making it a tightly controlled and high-risk zone.
It is the main shipping route for energy exports from major producers like Saudi Arabia, Iraq, Iran, Kuwait, Qatar, and the UAE. About 20 per cent of the global oil consumption and one-third of the world’s LNG flows through the Strait of Hormuz.
Volume of crude oil, condensate and petroleum products transported to the World through the Strait of Hormuz:
| CY2020 | CY2021 | CY2022 | CY2023 | CY2024 | Q1CY25 | |
| Total oil flows through the Strait of Hormuz (A) | 19.1 | 19.4 | 21.4 | 21.4 | 20.3 | 20.1 |
| World total petroleum and other liquids consumption (B) | 91.0 | 96.6 | 99.5 | 101.8 | 102.7 | 102.1 |
| % volume traded through Strait of Hormuz (A)/(B) | 21% | 20% | 22% | 21% | 20% | 20% |
| LNG flows through the Strait of Hormuz (billion cubic feet per day) | 10.7 | 10.7 | 11.0 | 10.5 | 10.3 | 11.5 |
How will Indian companies react/ get affected?
The impact of the escalations in West Asia on India’s trade is limited to energy. According to CareEdge, most of India’s merchandise trade with Europe passes through the Red Sea, and substantial trade with the US also takes this route. Any further escalation in the Israel-Iran conflict, it added, could potentially lead shipping companies to bypass the Red Sea and the Persian Gulf, opting for the longer route via the Cape of Good Hope instead. This would increase transit time and shipping costs. It would extend the lead time by approximately 14-15 days for exports from India to the US and Europe.
As a result, Indian businesses may face higher logistics costs due to longer shipping times and increased insurance premiums. This would affect the profits and operating cycle of companies involved in imports and exports.
Puneet Kansal, Director, CareEdge Ratings, said, “As conflict between Israel and Iran is rising, the near-term container freight rates and insurance premiums are expected to increase until the conflict in West Asia is resolved. Additionally, there may be a surge in crude oil prices along with critical energy imports for India, including LNG, natural gas, and petrochemicals, among others.”
Crude oil prices have increased by around 10 per cent since the conflict between Israel and Iran started on June 13, 2025, but with oil supplies so far undisturbed, both US crude oil and the global benchmark Brent remain below $80 per barrel.
The CareEdge report maintained that the disruption in cargo routes would mainly hurt food grains, perishables, and low-value goods, as their short shelf life and thin profit margins make it harder for them to absorb these extra costs.
Per the ratings agency, key manufacturing sectors reliant on petroleum-based inputs like aviation, chemicals, paints, tyres, logistics, etc., will likely see some pressure on profit margins due to a rise in raw material costs.
Lessons from the Red Sea crisis
This is not the first instance. Before this, the Red Sea crisis triggered by the Israel-Hamas war and escalated by the Houthi movement in Yemen, which commenced from October 2023, led to rerouting of vessels through longer voyages around the Cape of Good Hope. This led to higher fuel consumption, increased insurance costs and overall transit times. Consequently, shipping companies were forced to pass these higher operational costs onto customers through increased freight rates until a ceasefire was announced in January 2025, after which freight rates were normalised.
To conclude…
Ongoing tensions in the Middle East, shortages of rare earth magnets, and delays in finalizing the US-India trade deal are likely to keep straining global supply chains and trade. If the West Asia conflict drags on, CareEdge concluded, rising shipping costs, insurance rates, and oil price volatility could hurt the profits of Indian companies.
However, not all is bleak. India’s diversified crude sourcing strategy — tapping suppliers such as Russia, Nigeria, Brazil, and the US — offers a degree of insulation. Further, Priti Agarwal, Senior Director, CareEdge Ratings, said, “Iran itself relies heavily on the Strait of Hormuz for its oil shipments, and any self-imposed blockade would be against its own interest.”