West Asia Tensions Escalate, Exacerbating India's Trade Challenges

India's Trade Sector Bracing for Fresh Turbulence Amid West Asia Conflict

Key Highlights

• India's export sector is facing fresh challenges due to escalating tensions in West Asia, with potential disruptions to key trade routes and increased costs.
• Engineering exports to the region, including Saudi Arabia and the United Arab Emirates (UAE), may be affected.
• The Strait of Hormuz, a critical oil transit chokepoint, is a major concern, accounting for around 20% of global oil passes.

Impact on Indian Exports

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• A prolonged or wider conflict could disrupt established global logistics channels, leading to increased costs and stretched supply chains.
• Freight costs may rise due to rerouting of shipments via the Cape of Good Hope, adding 15-20 days to transit time for Europe and the United States.
• Marine insurance premiums are expected to increase, further adding to transaction costs for exporters.

Energy Markets

• Rising energy costs are emerging as a key concern for corporate India, with crude oil prices already jumping above $75 per barrel.
• Prolonged conflict could push prices higher, with estimates suggesting an average of $65 to $70 per barrel in 2026.
• India's 85% import dependency on crude oil and 50% dependency on liquefied natural gas (LNG) make it vulnerable to disruptions.

Industry Concerns

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• The textile sector is watching developments closely, with a significant portion of exports headed for West Asia.
• The UAE is India's third-largest trading partner and second-largest export destination, with trade booming under a trade deal between them.