India’s tightrope walk: Preserving strategic autonomy amid the Iran war

The ongoing conflict involving Iran has triggered a significant economic and humanitarian impact for India, primarily driven by surges in energy costs and disruptions to vital trade routes like the Strait of Hormuz. Indian stock markets saw over ₹9.7 lakh crore in investor wealth erased in just two days. The Indian rupee hit a record low, breaching the 92 per dollar mark for the first time. India imports nearly 85-90 per cent of its crude oil, with roughly half normally transiting the Strait of Hormuz. The conflict has pushed Brent crude prices toward $82.5 per barrel, leading to concerns about rising domestic inflation and a widening trade deficit.

There have also been trade disruptions. Nearly $6 billion in basmati rice exports are at risk, as Iran is a top buyer. The ceramic hub in Morbi, Gujarat, faces a crisis due to disrupted propane and natural gas supplies from the Gulf. Rerouting ships around the Cape of Good Hope to avoid conflict zones has added 25-30 days to journey times and significantly increased freight and insurance costs. Major carriers like Air India and IndiGo have cancelled or rerouted hundreds of flights, adding up to four hours of extra travel time for westbound journeys. Infrastructure giant Larsen & Toubro (L&T), which earns over 30 per cent of its revenue from the Middle East, faces operational delays and margin risks for its Gulf-based projects.

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Above all, there is significant humanitarian and diaspora impact. At least three Indian sailors were killed and 15-20 others injured in attacks on oil tankers near the Strait of Hormuz. India launched Operation Sindhu to evacuate nationals; as of early March, hundreds of Indian students and workers have been brought back from Iran. Over $50 billion in annual remittances from the 9 million Indians working in the Gulf are at risk due to potential job losses in the oil services and construction sectors.

India is actively steering clear of direct military involvement in the Iran-Israel/US conflict, opting instead for a policy of strategic neutrality, diplomatic engagement, and the protection of its core interests. New Delhi has avoided taking sides or naming either party as the aggressor, consistently calling for de-escalation, restraint, and dialogue. India has distanced itself from broader, bloc-based condemnations of the conflict (eg, in the Shanghai Cooperation Organisation), preferring to keep its own diplomatic channels open to all sides. India is managing a delicate balance, maintaining its "special strategic partnership" with Israel while simultaneously protecting key, long-standing economic and connectivity projects with Iran, such as the Chabahar Port.

The primary focus is the safety of over 10 million Indian nationals in the region and ensuring energy security (as a significant portion of India's crude imports transit the Strait of Hormuz). While the conflict poses a significant risk to India's economy and energy security, the government's current stance is focused on navigating the crisis without becoming a party or taking sides.

Against this background, why is India being linked to the sinking of the Iranian frigate IRIS Dena by a US submarine on March 4, 2026? The US Department of Defence confirmed the strike, with Defence Secretary Pete Hegseth describing it as the first sinking of an enemy warship by a US torpedo since World War II.

India is being linked to the sinking of IRIS Dena primarily because it was returning from Visakhapatnam, India, after participating in the Milan 2026 multilateral naval exercises and the International Fleet Review hosted by the Indian Navy. Social media speculation has alleged that India may have shared tracking information with the US, though these claims are unsubstantiated and denied by officials. The Ministry of External Affairs (MEA) has officially rejected "fake and false" claims by some US-based media that the US Navy used Indian ports to facilitate the strike.

The escalation so close to Indian waters has caused immediate concerns regarding energy security and rising freight and insurance rates for Indian trade. Critics and opposition parties, such as the Indian National Congress, have questioned whether the attack on an invited guest vessel "at India's doorstep" signals a loss of Indian strategic influence in its own neighbourhood.

President Donald Trump has stated that his goal is to complete major operations within four weeks, though US military officials warn of a longer conflict due to sustained resistance by the Iranians. While the US and Israel maintain air superiority and may have decimated Iran's navy and nuclear infrastructure, Iran continues to launch hundreds of ballistic missiles and drones from hardened, dispersed facilities. Moreover, Iran has expanded the war by striking U.S. allies and military bases in Qatar, the UAE, and Kuwait, including a direct hit on the Al-Udeid Air Base in Qatar.

There are several potential scenarios for how the conflict may now unfold. The removal of top leadership has left the regime "enfeebled". While some clerics are pushing to name Mojtaba Khamenei (Khamenei's son) as the next Supreme Leader, the vacuum could lead to internal power struggles or a pro-Western coup. If the central government collapses without a viable successor, Iran may fracture along ethnic lines (Kurds, Azeris, and Baloch), potentially leading to a prolonged civil war similar to those in Syria or Iraq. Iran's "Axis of Resistance" (Hezbollah, Houthis, and Iraqi militias) may continue a grinding, low-intensity campaign for years even if the central regime is neutralised. Movement of ships and tankers through the Strait of Hormuz, which carries 20–30 per cent of global oil and gas, may continue to be impacted. Over 150 tankers are currently stalled in the region, causing global energy prices to soar.

India's strategy for ending the current conflict involving Iran centres on a policy of "Dialogue and Diplomacy" while maintaining a balanced, neutral stance between all parties involved. Prime Minister Narendra Modi and External Affairs Minister S Jaishankar are actively engaged in telephonic diplomacy with leaders from both sides—including the Iranian Foreign Ministry and Israeli leadership—to urge immediate de-escalation.

India has officially emphasised that the "sovereignty and territorial integrity of all states must be respected," subtly signalling opposition to unilateral military strikes while avoiding direct condemnation of specific nations to preserve its role as a potential neutral mediator. India is coordinating with key regional partners, such as the UAE and other Gulf nations, to prevent the conflict from expanding into a broader regional war that would threaten global energy security. To minimise the conflict's human cost, India has established a control room to facilitate the safe return of its citizens and shifted students in high-risk zones like Tehran to safer locations.

In conclusion, India is highly vulnerable to disruptions in the Strait of Hormuz, where 40 per cent of its crude oil imports transit. Any prolonged war could spike oil prices, significantly increasing India's import bill and fuelling domestic inflation. The conflict threatens over $50 billion in annual remittances from the 9 million Indians residing in the Middle East, a vital component of India's GDP and foreign exchange reserves. India must perform a delicate balancing act to maintain its critical defence and technology ties with Israel while simultaneously protecting its long-term energy and trade interests with Iran.

(The writer is a retired Indian diplomat and had previously served as ambassador in Kuwait and Morocco and as Consul General in New York. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.)