West Asia Conflict Disrupting Shipments & Inputs for Indian Firms
“Because of war in the Middle East, the difficult global situation may continue for a long time. Therefore, we must remain prepared and stay united. We have faced such challenges before as well by staying united during the coronavirus pandemic. We must remain very careful and alert,” said Prime Minister Narendra Modi while addressing the Lok Sabha recently. Him addressing the nation about the ongoing conflict in West Asia indicates at the situation emerging as a significant disruptor of global trade dynamics, with ripple effects being felt across shipping routes, energy markets, and supply chains.
For India, a country deeply integrated into global trade networks and heavily reliant on energy imports, the impact is already visible. According to the Confederation of Indian Industry (CII), Indian companies are beginning to face shipment delays, rising logistics costs, and growing pressure on critical inputs, particularly in energy and raw materials.
What does the Confederation of Indian Industry say about the Cross-Border Trade Flows?
In a recent statement, CII Director General Chandrajit Banerjee highlighted the cascading effects of the conflict, noting that disruptions to key maritime routes have begun to strain cross-border trade flows. The Middle East, a vital hub for global shipping and energy supply, plays a central role in facilitating trade between Asia, Europe, and Africa. Any instability in this region inevitably leads to bottlenecks in global logistics, pushing up freight rates, delaying shipments, and creating uncertainty for businesses dependent on timely deliveries.
One of the most immediate concerns is the disruption to critical shipping corridors, particularly the Strait of Hormuz, through which nearly 20 percent of the world’s oil supply passes. This narrow waterway is indispensable for energy transportation, and any threat to its stability has far-reaching consequences. For India, which imports a substantial portion of its crude oil from the Gulf, even minor disruptions can translate into higher energy costs, inflationary pressures, and a widening trade deficit.
Indian companies across sectors are already reporting downstream effects. Shipment delays have become more frequent, affecting industries such as textiles, engineering goods, electronics, and chemicals. These sectors rely heavily on predictable logistics and just-in-time supply chains. When shipments are delayed or rerouted, production schedules are disrupted, inventory costs rise, and businesses face challenges in meeting export commitments.
The Inward Flow of Critical Raw Materials
The inward flow of critical raw materials and intermediates has also been affected. Industries dependent on petroleum-based products such as plastics, fertilizers, and chemicals are particularly vulnerable. Any disruption in crude oil supply not only impacts fuel availability but also affects a wide range of downstream industries. The result is a cascading effect across the economy, with multiple sectors forced to reassess production plans and cost structures.
Despite these challenges, CII has emphasized that India entered this period of geopolitical uncertainty from a position of relative strength. Over the past decade, structural reforms and a strong push towards self-reliance under initiatives like Atmanirbhar Bharat have enhanced the country’s economic resilience. These measures have helped reduce dependence on external supply chains in certain sectors and strengthened domestic manufacturing capabilities.
Banerjee pointed out that the government’s response to the crisis has been swift, coordinated, and proactive. Key measures include diversification of crude oil sourcing, efforts to maximize domestic LPG production, facilitation of exports, and steps to stabilize the currency. Such interventions are aimed at mitigating the immediate impact of the crisis while ensuring that the broader economy remains stable.
A notable initiative in this context is the RELIEF (Resilience & Logistics Intervention for Export Facilitation) scheme. With an outlay of Rs.497 crore, the scheme is designed to support exporters facing elevated freight rates, higher insurance premiums, and logistical delays. By offering partial reimbursement of increased costs and providing risk coverage through institutions like the Export Credit Guarantee Corporation (ECGC), the government aims to cushion the impact on both MSMEs and large exporters.
India’s trade ties with the Gulf region further underline the significance of the current disruptions. Countries in the region are among India’s largest trading partners, with the United Arab Emirates alone accounting for bilateral trade exceeding $80 billion in recent years. Indian exports to the region span a wide range of goods, including textiles, electronics, gems and jewellery, and engineering products. Any sustained disruption in this corridor could therefore have serious implications for India’s export performance and foreign exchange earnings.
Beyond immediate economic concerns, the crisis also highlights the strategic importance of accelerating India’s transition to sustainable and self-reliant energy systems. Investments in renewable energy, green hydrogen, biofuels, and energy efficiency are no longer just environmental priorities; they are critical components of national energy security. By reducing dependence on imported fossil fuels, India can insulate itself from geopolitical shocks and ensure greater stability in its energy supply.
How Should Companies Adapt to the Situation?
Indian industry is adapting to the evolving situation. Companies are actively diversifying their supply chains, exploring alternative sourcing options, and investing in energy efficiency measures. Many are also re-evaluating logistics strategies, including shifting to different shipping routes or increasing inventory buffers to manage uncertainties. Importantly, businesses are striving to maintain employment levels despite the challenges, reflecting a broader commitment to economic stability.
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Another dimension of the crisis is its impact on the large Indian diaspora in the Gulf region. The government has been closely monitoring the situation and engaging with stakeholders to ensure the safety and well-being of Indian nationals working in these countries. Their remittances form a significant component of India’s foreign exchange inflows, and any disruption in their livelihoods could have wider economic implications.
Looking ahead, the situation remains fluid and uncertain. Much will depend on the duration and intensity of the conflict, as well as the effectiveness of global efforts to maintain the security of key shipping routes. However, the current crisis serves as a stark reminder of the interconnected nature of the global economy and the vulnerabilities inherent in complex supply chains.
CII has indicated that it will continue to work closely with the government and industry stakeholders to monitor developments and provide real-time feedback. This collaborative approach is crucial in navigating the challenges posed by the crisis and ensuring that policy responses remain timely and effective.
What do Prashant Gokhale, President, Bangalore Chamber of Industry and Commerce (BCIC) say about the Conflict?
Prashant Gokhale, President, Bangalore Chamber of Industry and Commerce (BCIC) says, “Shipment disruptions between India and the Middle East are creating significant economic strain across multiple sectors. The halt in outbound shipments from India has directly impacted ongoing business operations, particularly those dependent on workable Letters of Credit (L/C), leading to delays in payments, contract uncertainties, and strained trade relationships.”
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“At the same time, challenges in inward shipments of crude oil are severely affecting the energy sector. Disruptions in crude supply have a cascading impact on petroleum products, including LPG and PNG, as well as downstream industries reliant on petroleum derivatives such as polymers and fertilizers. As a result, several industries are being forced to scale down production due to shortages of gas and energy inputs, affecting overall industrial output.”
“Beyond energy, shipment bottlenecks are influencing a wide range of sectors. The prices of essential raw materials like copper, steel, and electronic components are expected to rise due to constrained supply chains, increasing input costs for manufacturers.”
“These combined pressures are likely to drive inflation upward, weaken investor confidence, and negatively impact economic growth. Reduced industrial activity, rising costs, and disrupted trade flows could ultimately contribute to a slowdown in GDP growth, creating broader economic uncertainty.”
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Although the circumstances are challenging, the government's strategy and collaboration with various stakeholders will assist India in overcoming this challenge and maintaining its economic progress. There must be an emphasis on the significance of continued investments in renewable energy, green hydrogen, biofuels, and energy efficiency as essential steps to decrease susceptibility to geopolitical energy disruptions.
One can only hope for the East Asia conflict to resolve soon for businesses across the globe to get back to normal soon. But one thing is for sure, the business landscape has been altered permanently and the impact of this conflict will outlive war.