The escalating US-Iran conflict has wreaked havoc on market sentiment, leaving investors anxious about spiking crude oil prices and the economic fallout of a prolonged confrontation. This instability carries significant implications for Gulf Cooperation Council (GCC) economies, particularly with the threat of supply disruptions through the Strait of Hormuz, a vital chokepoint for global energy.
Consequently, Indian firms with meaningful exposure to the Middle East are facing heightened near-term volatility. The impact is particularly acute for the engineering, procurement and construction (EPC) sector, alongside oil & gas services, power transmission, and infrastructure. According to a PL Capital note, the extent of the damage will depend on project concentration, contract terms, receivable cycles, and the potential for a slowdown in fresh order inflows.
Bellwethers under pressure
The nervousness was palpable on the bourses on Monday, as Larsen & Toubro (L&T), the bellwether of Indian infrastructure, saw its stock slide nearly 5%. The Middle East is a key market for the company, especially for its projects and manufacturing businesses, and the region accounts for about 75% of its international order book.
Other EPC majors followed suit, with KEC International’s shares falling nearly 4%. The company's oil & gas pipeline business has secured its third international order for a pipeline laying project in the Middle East. As for order intake, the business has secured orders of over ₹13,500 crore so far in 2026 across India, the Middle East, the Commonwealth of Independent States (CIS) and the Americas, the company said in its Q3 earnings call. Meanwhile Kalpataru Projects International, which has 14 ongoing projects spread across India and the Middle East saw its stock shed more than 5%, while Engineers India stock dropped 4.2%.
Execution risk
Harshal Dasani, business head at INVasset Portfolio Management Services, said, “Indian capital goods and EPC players carry meaningful exposure to the Middle East across energy and infrastructure projects. At this stage, the risk appears more related to execution timing than structural demand destruction.” He added that while short-term disruptions are manageable, sustained instability could slow tender closures, delay private capex, and stretch receivable cycles.
Other prominent industrial and capital goods players also felt the impact. Shares of Apar Industries, a specialist in energy infrastructure, fell 4.4%, while those of Kirloskar Pneumatic and Cummins India saw more modest declines of about 1.4%.
Financial fallout
Anirudh Garg, partner and fund manager at INVasset PMS struck a cautionary tone, highlighting that high Middle East concentration could lead to temporary working-capital strain. “While larger players often include escalation clauses and maintain balance sheet buffers, compounding delays pose the real risk,” he said. Looking ahead, if higher input costs combine with slower billing milestones, cash conversion cycles could lengthen, incrementally compressing operating margins over several quarters.
Sandeep Parwal, founder of SPA Group, said, “Indian EPC and capital-goods firms will face material risks of order deferrals, slower tender closures, and stretched receivables if US-Iran tensions around the Strait of Hormuz persist, given their high GCC order book exposure."
“Sustained freight, insurance, and logistics cost hikes from Hormuz disruptions would also put pressure on operating margins and extend execution timelines for these companies with high Middle East concentration. There will be supply-chain concerns and disruptions in the normal business flow,” he added.