NEW DELHI: A US-Iran breakthrough easing tensions around the Strait of Hormuz is expected to improve India’s trade and energy outlook, with exporters and industry groups expecting lower freight costs, steadier supply chains and reduced volatility in Gulf-linked markets.
The development comes as India prepares to release its May merchandise trade data, offering a timely snapshot of export performance as risks to key shipping lanes and energy prices ease after months of disruption in West Asia.
For nearly three months, tensions in the region had unsettled the Strait of Hormuz, one of the world’s most critical maritime chokepoints for energy and trade flows. An estimated 40-45% of India’s crude oil imports and a higher share of liquefied natural gas and liquefied petroleum gas, roughly 60-90% depending on the product, have historically passed through the waterway.
Overall, about 15-16% of India’s total trade is linked to Hormuz-connected economies, with exposure significantly higher in energy imports than exports.
The disruption that began in late February led to rerouting of some cargo via longer maritime routes such as the Cape of Good Hope, adding 15–20 days to transit times in certain cases. Freight and insurance costs rose, oil markets turned volatile and exporters faced intermittent delivery delays.
Brent crude crossed $100 a barrel during the period, compared with about $70 before the war erupted in late Fedruary, raising import costs and stoking inflation concerns.
Political signals
Political statements from the region and beyond suggest a US-Iran understanding has helped ease tensions around the Strait, though details remain unclear and its durability is uncertain.
Pakistan's Prime Minister Shehbaz Sherif, said on X, formerly Twitter, that “…the Peace Deal between the United States of America and Islamic Republic of Iran has been REACHED. Both sides have declared the immediate and permanent termination of military operations on all fronts, including in Lebanon."
Sharif said the official signing ceremony would take place on 19 June in Switzerland. Pakistan has been involved in facilitating contacts between Washington and Tehran in recent months.
US President Donald Trump wrote on Truth Social, “The Deal with the Islamic Republic of Iran is now complete. Congratulations to all! I hereby fully authorize the toll free opening of the Strait of Hormuz, and, simultaneously herewith, authorize the immediate removal of the United States Naval blockade. Ships of the World, start your engines. Let the oil flow!”
Shipping costs and export competitiveness
Shipping and logistics costs are expected to ease if stability holds, though industry participants caution conditions remain fragile.
Confederation of Indian Textile Industry chairman Ashwin Chandran said more stable shipping conditions would support export competitiveness and supply chain reliability, particularly for labour-intensive sectors such as textiles.
Chandran said smoother cargo movement through the Strait could also support India’s efforts to expand trade under existing bilateral trade frameworks, including the India–UAE Comprehensive Economic Partnership Agreement, in force since 2022.
India also has a CEPA with Oman that came into effect in 2026, while broader negotiations for a proposed India–GCC free trade agreement covering Saudi Arabia, Qatar, Kuwait, Bahrain and Oman remain under discussion, with talks having progressed intermittently but not yet concluded.
India’s exports to West Asia account for about 16% of total shipments, while imports make up roughly 11%, underscoring the region’s disproportionate importance in trade flows.
India has set a target of $100 billion in textile and apparel exports by 2030, a goal industry stakeholders say is highly sensitive to freight costs and access to West Asian and European trans-shipment hubs, particularly through the United Arab Emirates (UAE).
Small exporters could gain if logistics costs stabilize, according to industry estimates.
Micro, small and medium enterprises (MSMEs), which account for 48-49% of India’s merchandise exports as of FY25-FY26 estimates, could benefit if shipping costs and delivery times stabilize, said Vinod Kumar, president of the India SME Forum. India's total merchandise exports in FY26 were about $442 billion.
Kumar said lower logistics costs and improved buyer confidence could support stronger export momentum if regional stability persists over the coming year, though gains would depend on whether the current de-escalation holds.
He added that under a sustained-stability scenario, MSME export growth could rise 3–5% above baseline expectations in FY27, potentially translating into several billion dollars in additional exports over the medium term.
The energy sector is also expected to benefit, though analysts caution that pricing effects may be gradual and dependent on sustained stability in shipping lanes.
India imports roughly 85–90% of its crude oil requirement, with a substantial share sourced from West Asia and much of it transiting through the Strait of Hormuz. The region is a key supplier of liquefied natural gas and liquefied petroleum gas, leaving India structurally exposed to disruptions in the corridor.
Recent volatility had raised concerns over import costs, inflationary pressure and currency stability. Market participants say easing tensions have reduced near-term risk premiums in oil and gas pricing, although the extent of pass-through to domestic fuel prices will depend on broader global supply conditions.
India’s crude import bill is estimated at about $123 billion annually, with every $1 per barrel increase in oil prices adding roughly ₹18,000 crore to import costs.
Beyond energy and textiles, exporters in sectors such as petrochemicals, pharmaceuticals, engineering goods, automobiles and gems and jewellery could see incremental benefits from improved shipping reliability and lower transit risk.
However, trade exposure varies significantly by sector, and the direct sensitivity to Hormuz-related disruptions is more pronounced in energy-linked and Gulf-dependent supply chains than in others.
Fragile geopolitics and policy implications
Still, analysts and think tanks caution that the stability remains fragile and subject to rapid reversal if geopolitical tensions escalate again.
The Global Trade Research Initiative (GTRI) said the situation underscores the strategic leverage of energy chokepoints in global diplomacy and the need for India to maintain flexibility in its external economic strategy.
Founder Ajay Srivastava said the episode highlights how economic and security considerations are closely intertwined in shaping negotiations around critical maritime routes.
“The United States did not embrace peace out of goodwill; it did so because the costs of war became too high,” he said, adding that India should engage major powers “as an equal partner,” while maintaining “strategic autonomy” and economic resilience.
Industry participants expect a more stable Strait of Hormuz to support India’s exports and ease pressure on energy imports, but say the benefits will hinge on whether the current calm holds.