US-Iran Conflict Raises Uncertainty for Capital Goods Exporters with Exposure to West Asia

India's Capital Goods Exporters Face Risks from US-Iran Conflict

The ongoing conflict between the United States and Iran is emerging as a fresh risk for Indian capital goods exporters with exposure to West Asia. Analysts have expressed concern that the disruption of the Strait of Hormuz, which carries 20% of the world's crude and 50% of India's oil imports, could lead to elevated oil prices and increased global market volatility.

Key Risks

• Disruption of the Strait of Hormuz could lead to:
  • Elevated oil prices
  • Increased global market volatility
  • Capital flow risks
  • Execution delays in infrastructure and energy projects
  • Supply-chain bottlenecks
  • Higher freight and insurance costs
  • Potential deferral of private capex
• Project delays and capex worries could affect Indian exporters of industrial equipment, power components, and engines
• Drone strikes on Amazon Web Services data centres in UAE and Bahrain highlight the risk to private capex in the GCC region

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Company Exposure

• Apar Industries has an estimated 5% revenue exposure to West Asia and operates a manufacturing facility in the UAE and a subsidiary in Saudi Arabia
• Cummins India exports low-horsepower generator sets and provides services in the region, which could face short-term demand uncertainty
• Kirloskar Pneumatic has historically had less than 10% exposure to West Asia, but is already witnessing delays in oil and gas-related orders from the region

Impact on Exports

• The conflict adds to the woes of Indian exporters, who have already been affected by US tariffs
• Export demand remains choppy, with no clear regional trend, according to Cummins India management
• Apar Industries has seen exports hit by steep US tariffs, sharply reducing Q3 shipments, especially in cables

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Conclusion

The ongoing conflict between the United States and Iran poses significant risks to Indian capital goods exporters with exposure to West Asia. The disruption of the Strait of Hormuz and potential project delays and capex worries could lead to increased volatility, supply-chain disruptions, and order visibility issues.