US–Iran conflict: With Strait of Hormuz closed, India faces rising uncertainty and economic risks

The escalating confrontation between the United States and Iran has created major geopolitical and economic challenges for India, which has deep strategic, energy and diaspora ties across West Asia, currently in turmoil. The US and Israel jointly launched strikes on Iran on 28 February following failed nuclear talks. The strikes killed Iran's Supreme Leader Ayatollah Ali Khamenei, along with many others, after missiles hit his home-office compound in Tehran.

With the Strait of Hormuz still shut – a move that has the potential to disrupt roughly a fifth of global oil supplies and push crude prices higher – and with the conflict getting wider each day, India faces heightened concern over possible disruption in commodity prices, gold prices, worker remittances and businesses that have expanded into the region.

Tankers travelling through the Strait of Hormuz, bordered to the north by Iran, transport energy supplies from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the UAE and Iran. About 20% of the world's daily oil consumption passes through the Strait of Hormuz.

Most of the region’s oil and gas is destined for Asia, so any disruption in traffic through the narrow Strait of Hormuz can significantly impact global energy trade. Recently, amid pressure from US President Donald Trump to limit its Russian oil imports, India had been expanding its energy ties in the Gulf, which is now facing renewed conflict and attacks.

JPMorgan analysts said in a note that crude oil supplies from Iraq and Kuwait could start shutting within days if the Strait of Hormuz remains closed, potentially cutting 3.3 million barrels per day by Day 8 of the conflict. The conflict has already entered Day 6.

On India, Brokerage Jefferies Group said, “A prolonged conflict, alongside a large jump in energy prices, ⁠would be a major macro negative [for India]”. It noted that the Middle East region accounts for 17% of India's exports, supplies 55% of its crude oil and provides 38% of worker remittances.

Speaking with LiveMint, Amb Anil Trigunayat explained that the security and stability of West Asia, currently in conflict, is of existential importance for India. “It is due to 4Es I.e Energy supplies and security (60-70%); economic engagement (more that $100 billion and presence of thousands of Indian companies and their investments and commitments in India will also suffer. Ease of Navigation will be impacted with Redea/Suez and Strait of Hormuz (75% transit dependency)," he said, adding the need to ensure the safety of 10 million Indian nationals.

“It is a defining moment for regional power balances and a challenge for India,” he said.

Praveen Donthi, Senior Analyst, International Crisis Group, told LiveMint that the US-Iran conflict could spell a greater impact on India and its economy than any other, “given the organic links that have developed over time.”

Speaking of worker remittances from these countries, Donthi said, “Nearly 10 million Indians reside in the Gulf countries and send remittances home.” He also added that India receives substantial investment from sovereign wealth funds based in the region.

“About 50% of India’s oil imports and 60% of its LNG pass through the Strait of Hormuz, which has been blocked by Iran. India holds crude oil and fuel stocks for only 25 days, leaving it highly vulnerable to supply disruptions. A shortage of gold and diamonds is also probable,” he said.

According to the Tea Association of India, tea exports could also face huge disruption if shipping through the Strait of Hormuz stays shut. It said a large shipment goes through the Strait to Iraq, Iran, Kuwait, Saudi Arabia, Bahrain, Qatar and the UAE in the Persian Gulf.

In 2025, India exported about 280 million kg of tea, of which nearly 41%, 115 million kg, was shipped collectively to the UAE, Iran and Iraq, the association said.

If Hormuz remains closed for trade, it “will have a serious impact on Indian tea exports.”

So, what can India do to navigate the turbulence in the Middle East? Donthi said, “India will need to diversify its oil sources and increase imports from Russia, which will require persuading the Trump administration. This will be a test of India’s strategic autonomy and its ability to navigate a turbulent world.”

(With Reuters inputs)