The Iran-Israel conflict is showing no signs of abating, thereby further increasing uncertainties in the global stock markets, trade, and geopolitical stability in the region. Indian exporters are a worried lot as well, since any escalation in conflict will affect both air and sea freights.
It’s not just India’s trade with Iran and Israel, but also with Europe and Russia that is in imminent danger of getting impacted since the Red Sea and the Strait of Hormuz are two of the most important trade routes for merchant ships.
In fact, around 80 per cent of India’s merchandise trade with Europe passes through the Red Sea, while substantial trade with the US also takes this route. Both these geographies account for 34 per cent of the country’s total exports.
The Red Sea strait is vital for 30 per cent of global container traffic and 12 per cent of world trade.
Chinks first started to appear when Hamas launched an attack on Israel on October 7, 2023, bringing cargo movement through the Red Sea to a complete halt as Houthi rebels began targeting commercial ships. The Bab-el-Mandeb Strait, a crucial shipping route connecting the Red Sea and the Mediterranean Sea with the Indian Ocean, became too dangerous for transit because of the attacks. The US’ intervention in the form of counter-attacks on the rebels finally saved the merchant ships.
Exporters fear that cargo ships, which had since gradually started returning to the Red Sea en route the US and Europe from India and other Asian countries would now be forced to take alternative sea routes that take 15-20 days more.
“The situation had begun to improve gradually, but now, trade will be impacted,” says S C Ralhan, president of the Federation of Indian Export Organisations (FIEO).
“Our exports to Europe and countries like Russia may get hurt. Freight rates and insurance are expected to increase,” he fears.
Mumbai-based exporter and founder-chairperson of Technocraft Industries Limited, S K Saraf, shares Ralhan’s worry. “The immediate fallout of the conflict that started on June 13 will be increase in freight and insurance charges, that too after a period of calm when routes via the Red Sea routes were slowly being used again,” he says.
Another week of the continuation of the Iran-Israel war will make the situation for global trade very difficult, predicts Saraf, adding that “Iran and Israel are our big trading partners too”.
“Escalated freight costs will have to be borne by the traders. If the war persists beyond a week, it can push freight rates by about 50 per cent,” he warns.
FIEO’s director general, Ajay Sahai, says that it’s important to note whether the conflict remains localised or expands to other countries. “The impact will be first felt in the global crude oil prices,” he says.
Apart from the Red Sea route, the Strait of Hormuz, which is located between Oman and Iran and connects the Persian Gulf with the Gulf of Oman and the Arabian Sea, is also expected to slow trade movement.
Around 21 per cent of the globe’s petroleum liquids pass through this route.
Countries including China, India, Japan, and South Korea are the top destinations for crude oil moving through the Strait, while Oman uses this route to supply liquefied natural gas to India. Only Saudi Arabia and the United Arab Emirates (UAE) have operating pipelines that can circumvent the Strait of Hormuz.
While the Indian government is expected to hold meetings with exporters in the coming days to discuss recent developments, there’s mounting pressure on world trade which was already reeling under threats of high tariffs by US President Donald Trump.
India’s exports to Israel have fallen sharply to USD 2.1 billion in 2024-25 from USD 4.5 billion in 2023-24. Imports from Israel came down to USD 1.6 billion in the last fiscal from USD 2.0 billion in 2023-24.
Similarly, exports to Iran of USD 1.4 billion, which were at the same level in 2024-25 as in 2023-24, could also suffer. India's imports from Iran were at USD 441 million in FY25 as against USD 625 million in the previous year.
Based on the tariff war impact, the World Trade Organisation (WTO) has already said that the global trade will contract 0.2 per cent in 2025 as against the earlier projection of 2.7 per cent expansion.
India's overall exports that had grown 6 per cent on year to USD 825 billion in 2024-25 were expected to touch USD 1 trillion by the end of this year, according to FIEO, and it could fall well short of this target due to geopolitical uncertainties.
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