The Strait of Hormuz crisis poses a serious threat to India, given that its exports to the Gulf amount to 57 billion dollars. Oil imports are being disrupted, and shipments to Europe are being further delayed as fuel prices surge. This growing war may soon blow up the grocery bill!
Strait of Hormuz Crisis
The Strait of Hormuz crisis broke out on February 28 when the US and Israel conducted airstrikes on Iran, killing Supreme Leader Ali Khamenei, in Operation Epic Fury. Iran responded by launching missiles on US bases, Israeli cities, and Gulf countries such as the UAE and Bahrain, and shutting down the Strait on March 2, stopping maritime traffic. About 2.5 million barrels per day, which is 50% of India’s oil import, passes through the Strait of Hormuz primarily from Kuwait, UAE, Saudi Arabia and Iraq. This is driving oil and gas prices up in India.Impact on Oil and Fuel Prices
India imports about 5 million barrels per day of oil from other countries, of which 2.5 million bpd passes through the Strait of Hormuz. This has made India’s situation vulnerable to continued blockade. The 40 per cent of the east-bound oil flows are blocked, and gasoline and diesel prices have soared 15-20 per cent since early March, driving inflation in transport and food prices.Risks to Middle East Exports
India's exports to the Gulf Cooperation Council (GCC) countries reached 57 billion in FY25, an increase of 1 per cent over the previous year, which is about 13 per cent of merchandise exports. Shipments to the UAE alone were $36.64 billion in FY24 (estimated to be higher in FY25), with engineering goods (8.28B), gems/jewellery (7.75B), and petroleum products (6.39B) leading. Rice (5.94B total, Iran's major buyer at 6%), tea, textiles, and machinery are under fire; Hormuz shutdown reduces maritime traffic, increasing SME freight costs 1,800 per 20ft container and 3,000 per 40 ft, cutting thin margins.Europe Trade Disruptions
In FY25, exports to the EU amounted to $75.85 billion of the bilateral merchandise trade of $136.54 billion, including textiles, autos, steel, and pharma. Hormuz misery is added by Red Sea attacks, which are causing Cape of Good Hope reroutes with 14-21 day delays and 30-35/TEU bunker surcharges per $10 Brent increase. The Carbon Border Adjustment Mechanism (CBAM) of the EU already imposes taxes on steel/cement; logistics increases are now threatening the competitiveness of textiles/autos, even though the January 2026 India-EU FTA will reduce tariffs by 99.5%.Central Asia Ripple Effects
India trades with Central Asia (Kazakhstan, Uzbekistan) to the tune of 2 billion dollars, with pharma (167M+ to Uzbekistan), machinery (37M), and chemicals, which are indirectly affected by energy shocks and Middle East reroutes. The increased cost of inputs and delays through interrupted Gulf routes increase the prices of these landlocked markets.India's Resilience Measures
The total exports increased 6.15 per cent to $720.76 billion in Apr-Jan 2025-26, grit in the face of US tariffs. Losses are compensated by increasing Russian oil (1.15M bpd in early 2026, 20M barrels afloat US 30-day sanctions waiver). Africa and the Americas risks are being diversified through strategic moves such as Production-Linked Incentives (PLI), and FTAs (EU, Gulf talks). The government drives other avenues and African markets to keep the momentum.Path Forward
Diversification is important for India. Increase in Russian imports, increase PLI in export industries, and concluding GCC FTAs are some initiatives that India must take. In its absence, inflation may shoot up by 200-300 basis points in the short term, hurting households through groceries and fuel. The resilience of India in trade will determine whether this war will dent growth or trigger more aggressive economic plans by the Narendra Modi Government.Rajeev Upadhyay
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