The ongoing conflict in the Middle East is unlikely to materially disrupt the flow of money to India from overseas workers, as the relative contribution of the gulf nations in such remittances has declined over the years.
While acknowledging that there will be an impact on inflows, experts said there are two primary reasons why the decline in remittances will not be significant.
First, experts hope that the escalation in tensions surrounding the GCC (Gulf Cooperation Council) nations is short-lived and does not lead to a full-blown war among multiple nations. GCC is a six-nation grouping that includes the United Arab Emirates (UAE), Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia. Second, remittances from the US now dominate flows into India.
“Assuming that this is a short-lived situation, I do not see any knee-jerk dip in remittances to India, but any hit to remittances, if any, will be short-lived as well,” said Gaura Sengupta, chief economist, IDFC First Bank.
“Life in the other GCC countries is expected to normalize much faster.”
The US and Israel launched coordinated air and missile strikes against Iran early on Saturday. Iran responded with retaliatory attacks on American military bases and Israeli targets across the Middle East.
According to Sengupta, there has been a change post covid-19, and a lot of remittances are now coming from other nations like the US, Singapore, and even the UK.
The US is now the largest source of inward remittances, accounting for 27.7% of such flows into India as of FY24, per latest data from the Reserve Bank of India (RBI). The UAE, which was the largest source in FY17, is now the second largest, while nations like Saudi Arabia and Kuwait slipped further down.
Among Indian states, Maharashtra was the largest recipient of remittances into India, at 20.5% in FY24. It was followed by Kerala, Tamil Nadu, Telangana, Karnataka and Andhra Pradesh.
In Q2 (July-September) of FY26, personal transfer receipts that mainly represent remittances by Indians employed overseas, rose to $38.2 billion, from $34.4 billion a year ago, per RBI data.
Conflict risks
However, experts said that the conflict is no longer limited to Iran, and that could have some bearing on India's overseas workforce. Reuters reported on Sunday that loud blasts were heard in Dubai and Qatari capital Doha for a second day on Sunday, and Oman was hit for the first time as retaliatory strikes on neighbouring Gulf states in response to US and Israeli strikes on the Islamic Republic widened.
“There will definitely be a hit to the extent of the remittances coming from this particular geography. It is not just Iran we are talking of, we are talking of these other nations UAE and Saudi and the neighbouring ones, and this is where most of India’s labour goes,” said Madan Sabnavis, chief economist, Bank of Baroda.
Sabnavis also pointed to the gulf nations losing out to the US when it comes to money being remitted to India, saying that there are more affluent Indians living in the US than in the GCC countries and therefore the US dominates remittances.
“That is where most of the IT professionals are and they send money home,” he said.
Others said it was too early to assess the impact on remittances.
“If the banking systems get impacted because of the war, the servers and the disaster recovery systems are attacked, then remittances will be hit. The closure of the Strait of Hormuz will also impact trade,” said managing director and chief executive of a Bengaluru-based recruitment firm who spoke anonymously.
Oil and outlook
Meanwhile, the tensions and the subsequent closure of the Strait of Hormuz, from where about a fifth of the world’s oil supply passes, are expected to spike oil prices.
Several tanker owners, oil majors and trading houses have suspended crude oil, fuel and liquefied natural gas shipments via the Strait of Hormuz after the US and Israel attacked Iran, and Tehran said it had closed navigation, Reuters reported, citing trading sources on Saturday.
For India, oil price rise usually leads to higher remittances, but not this time round. Typically, income, and employment in the Gulf countries are linked to oil prices and therefore during periods of high oil prices, workers are able to earn and send more money home.
“However, oil price rise this time round would not lead to higher remittances since the overall economic conditions of that region will also be impacted on account of the war,” said Sabnavis.
Sengupta said that the relationship between oil prices and India’s inward remittances has also changed in the past few years. “Whenever you had low crude oil prices, remittances used to get hit but in the last couple of years, we have not seen that. Every single year, remittances are touching fresh highs,” she said.