From Basmati to cars: How the Iran war could hit India’s Gulf trade

While the war in Iran has triggered everything from mild concern to wild panic, it is important to take stock of what the real economic pinch is likely to be for India. According to sector specialists and analysts, in the medium term India will likely be “more resilient and the impact will be sporadic,” said Hemal Thakkar, senior practice leader & director – consulting, CRISIL Market Intelligence & Analytics. Whatever challenges India will face will be more “on account of a global demand slowdown and temporary crude flare-ups,” he added.

The real pinch, at least for now, will be on the export front given that the GCC region currently contributes around 14 per cent of exports and nearly 21 per cent of imports, said a just-released ICRA report. Apart from engineering goods and automobiles, other big export items include apparel, rice, and gems and jewellery. Analysts say perishables and bulk goods will be most affected by the current crisis. But overall, “higher freight costs, supply delays, and uncertainty over energy supplies” could play spoiler for Indian exporters and importers, says the ICRA report. This is important because India clocked exports worth $438 billion and imports worth $721 billion from the region in FY25. The UAE is the top exporter and importer for India with nearly a 9 per cent share of imports and 8.4 per cent share of exports. Saudi Arabia is second with 4.2 per cent of imports and nearly 3 per cent of exports.

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Sectorally, engineering goods (including automotive components) and passenger vehicles are big exportables for India. The GCC countries contribute up to 20 per cent of Indian passenger vehicle exports, with durable Made-in-India vehicles popular as taxis in the Gulf. Said Pankaj Chadha, chairman, Engineering Exports Promotion Council India: “The GCC region comprises 15-16 per cent of our $120 billion engineering exports and it is growing in double digits.”

The largest market for India is the UAE, not only by itself but also because a part of the cargo then finds its way to Iran. The war in the region, the blockage of the Strait of Hormuz, through which 20 per cent of global oil flows, and the re-emergence of the Houthis in the Red Sea will push up logistics and insurance costs and pinch export margins. “Already freight costs have gone up by $2,000 per container, which works out to $100 per tonne,” added Chadha. India’s exports to Bahrain, Kuwait and Qatar go through the Strait of Hormuz and a blockade there is not in anyone’s interest.

Outside of engineering goods and automobiles, Basmati rice, diamonds and ceramics are big exportables to West Asia. In Basmati rice, the GCC region comprises 70-75 per cent of India’s exports worth around $5.5 billion. Similarly, 28 per cent of India’s cut and polished diamonds go to these markets, clocking exports worth $10 billion in the ten months of FY25-26. In ceramics, while the region’s share has dropped from 33 per cent in FY2020 to 23 per cent in FY25-26 because of anti-dumping duty, it is still a $3.2 billion basket in the first ten months of the current fiscal. Many of these segments saw determined efforts by exporters to increase their share in the GCC given the confusion unleashed by US tariffs last calendar year. That increased dependence will now hurt a little more.

While most analysts say the export pinch will start to hurt if the war continues beyond the first quarter of fiscal 2026-27, the more immediate concern is the availability of gas. The disruption in the supply of natural gas and propane gas has already started to cause supply shortages and price increases. Fuel costs contribute up to 25 per cent of production costs while coal and gas together comprise 40-60 per cent of that slab. Which means while bigger players can absorb the current pinch, running on existing stock and the ability to negotiate better terms, smaller players will squeal.

Already, with domestic consumption prioritised over industrial usage, some MSME sectors like the Morbi ceramic cluster in Gujarat are facing challenges, said Hemal Thakkar. However, here too, so far the pain is sporadic and temporary. If the crisis gets resolved in the next few weeks, things will go back to normal fairly quickly.

What will take longer to settle, though, is the Red Sea crisis. After disrupting trade routes in 2023 and 2024, the Houthi menace had more or less fizzled out. “Things had gone back to normal for the last 8-9 months but now the Houthi problem is back and that’s not good for business,” said Chadha.

Of course, underlying all of this is the crude impact, which is the elephant in the war room. While crude prices, which soared to $120, have cooled somewhat, everything is still highly volatile. But analysts are keeping an eye on just how long it will be before Europe starts squealing. India’s Russia-sourced oil also feeds Europe (which could explain the US president’s magnanimity about Russian oil imports for the moment), and a crude surge is in nobody’s interest. If the war drags on, India will hurt but so will America’s NATO allies

(Nandini Sen Gupta is a freelance writer and author of several books. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.)