It could particularly affect exports such as basmati rice, fertilisers and diamonds (both cut and polished), says a report by rating agency Crisil
he ongoing conflict between Israel and Iran, if further escalated, could significantly impact not only India’s oil sector but also broader trade with both nations. While India’s direct trade with Israel and Iran is relatively small — accounting for less than 1% of its total trade in the last fiscal year -- some key sectors may be impacted. It could particularly affect exports such as basmati rice, fertilisers and diamonds (both cut and polished), says a report by rating agency Crisil. The military escalation between the two countries has already contributed to volatility in global crude oil markets. If crude oil prices remain elevated over a longer period, India Inc.’s profitability may take a hit, says Crisil. Prolonged uncertainty could drive up air and sea freight costs, as well as insurance premiums for trade-dependent sectors. India’s major export to Iran is basmati rice, while trade with Israel is more diversified — covering fertilisers, diamonds, and electrical equipment. In FY25, Iran and Israel together accounted for roughly 14% of India’s total basmati rice exports. India’s exports to Israel totaled just over $2 billion in FY25, while exports to Iran were nearly $1.2 billion. Exports to Israel, which has seen continuous tensions since Hamas attack on Gaza strip on 7 October 2023.Exports to Israel already plummeted by half in FY25 due to internal strife. Exports to Iran in FY25 remained flat with 1.22% growth, but if the current situation prolongs, trade with the country may suffer further. India exports rice, organic chemicals, precious metals and machinery and mechanical appliances.
The commerce ministry officials earlier said issues at the Strait of Hormuz and Red Sea could impact trade. “…if the conflict gets prolonged, there are implications for trade. To what extent those implications would be for India, that we are in constant touch with our exporters, and we are holding meetings with the stakeholders,” said a commerce ministry official.
Crisil says for India’s diamond polishing industry, Israel functions primarily as a trading hub, contributing around 4% of total diamond exports last fiscal. About 2% of India’s rough diamond imports also came from Israel.
However, the industry has alternative hubs such as Belgium and the United Arab Emirates (UAE), and key buyers in the United States and Europe, offering resilience against potential disruptions. Israel is also a significant global producer of muriate of potash (MoP), contributing about 7% of India’s MoP imports in the last fiscal year. Aviation companies may face cost pressures as jet fuel accounts for 35–40% of their operating expenses. Route diversions and airspace restrictions due to regional tensions could further inflate fuel consumption and costs. Brent crude futures are hovering around $77 a barrel from below $70 a month ago.
Rising global crude prices are also likely to affect India’s petrochemical sector, as the cost of ethylene — a key input—will increase. Downstream industries such as paints, tyres, adhesives, shipping, and specialty chemicals may also face margin pressure due to higher raw material and energy costs.
