West Asia conflict may hurt Indian economy; oil, rice, gems among 15 sectors at risk, warns expert

The escalating confrontation in the West Asia involving the United States, Israel and Iran could have far-reaching economic consequences for India, affecting everything from inflation and currency stability to trade flows and several domestic industries.

Investment banker Sarthak Ahuja, in a recent analysis, outlined five major channels through which the conflict could impact the Indian economy, warning that as many as 15 sectors and business segments may face direct or secondary effects if tensions persist.

One of the most immediate risks comes from higher crude oil prices, which tend to rise sharply whenever geopolitical tensions disrupt energy supply routes in the Gulf. For India, which imports nearly 90% of its crude oil requirement, any sustained increase in oil prices can translate into higher inflation, rising logistics costs and pressure on government finances.

Higher fuel costs also ripple through the broader economy, increasing transportation expenses and pushing up prices of goods and services.

A second impact stems from rising freight and insurance costs for global shipping. Heightened geopolitical risk in the region, particularly around the Strait of Hormuz, has led to higher insurance premiums for cargo vessels and increased shipping costs. This compresses margins for Indian exporters and importers engaged in international trade.

Currency pressures could also intensify. According to Ahuja, the rupee could weaken further against the US dollar if oil prices continue to rise, since higher energy imports widen India’s import bill. A weaker rupee makes imports more expensive, adding another layer of inflationary pressure.

The aviation sector may also feel the impact. Airlines are already facing flight disruptions and cancellations due to airspace restrictions and higher fuel costs, which could reduce international travel and business trips. Reduced business travel can indirectly affect sectors such as hospitality, tourism and corporate services.

Another trend emerging during periods of geopolitical stress is a temporary spike in inward remittances from non-resident Indians (NRIs). While higher remittances can support foreign exchange inflows, Ahuja noted that such inflows are often precautionary in nature and may not translate into higher household spending, potentially limiting their broader economic impact.

Beyond these macro effects, several specific industries could face operational disruptions or cost pressures.

The basmati rice export sector is among the most exposed. Iran is the largest buyer of Indian basmati rice, followed by Iraq, while Gulf countries together account for more than half of India’s exports of the premium grain. According to Ahuja, over 200,000 tonnes of basmati rice shipments are currently stuck on vessels unable to move due to disruptions in the region.

If shipments remain stalled, the domestic market could see excess supply of rice, potentially pushing prices lower for farmers and traders.

The gems and jewellery sector may also face challenges. A significant portion of India’s gold and rough diamond imports flows through Dubai, a key trading hub. Any disruption in supply chains could reduce manufacturing and export activity from centres such as Surat, one of the world’s largest diamond processing hubs. Limited gold supply could also push domestic gold prices higher.

Manufacturers in textiles and garments, particularly those dependent on polyester yarn, may experience higher input costs, squeezing margins and raising export prices.

Meanwhile, industries such as paints, tyres and chemicals could see rising raw material costs, as many of their inputs are derived from petrochemicals linked to crude oil prices.

Agriculture may also face indirect pressure. Nearly 70% of India’s sulphur fertiliser imports come from the Gulf region, and supply disruptions could raise fertiliser costs. This may require additional government subsidies for farmers, potentially diverting fiscal resources from infrastructure spending.

International travel demand could also soften if geopolitical tensions escalate further, prompting travel operators to shift focus toward domestic tourism destinations.

Ahuja noted that India may attempt to increase oil imports from Russia to manage supply pressures if Middle East disruptions intensify.

However, the broader economic outlook will largely depend on how long the conflict lasts. If tensions ease quickly, the impact may remain limited. But a prolonged disruption could begin to affect prices, supply chains and business activity across multiple sectors of the Indian economy.