‘Iran-Israel’ War: Its Potential Impact on India.
Sanjoy Roy
June 24, 2025
On 13th June, Israel launched a military operation against Iran, leading to a protracted conflict between the two countries, resulting in a chaotic situation throughout West Asia. This Israeli operation is considered a premeditated attack, the main goal of which is to stop Iran's nuclear program, especially the nuclear bomb and ballistic missile production program etc, remove key military/hard-line Iranian leaders involved in it and change the current regime because Israel considers Iran as an existential threat. For the past eleven days, the war between Israel and Iran has been in full swing and is continuing to attack it with the help of aircraft, missiles and drones etc. Although Israel's attack was more intense and swift at the beginning of the war, Iran has been launching a series of ballistic missile (mostly) attacks on Israel for the past few days. As a result, it is not immediately certain how long this war will continue or what form it will take because both countries are being directly and indirectly supported by their allies. But the situation took a new turn as the United States of America ( the USA) has joined Israel in this war and has launched a powerful attack on three important nuclear centers/bases of Iran, namely Fordow, Nantaz and Isfahan. As a consequence, it is easily conceivable that this ongoing war can soon take a larger form if other powerful countries stand by Iran. Accordingly, the Iran-Israel war is found to have a significant adverse impact on India, because India has strategic interests and relations with both countries.
It goes without saying that Israel is primarily targeting Iran's military bases, weapon production and refueling facility centers and nuclear centers etc. The attacks killed several high-ranking Iranian officials, including Major General Mohammad Bagheri and Major General Hossein Salami. On the other hand, Iranian officials have vowed to retaliate strongly for the aggression. Following the Israeli attack, Iran declared a state of emergency, officially declared war and launched retaliatory missile strikes against Israel. According to reports, Iran has fired hundreds of missiles at key Israeli cities (Tel Aviv, Haifa, etc.) targeting military/administrative centers, oil refineries, with some missiles hitting civilian areas, city centers, hospitals, and public spaces in Israeli territory. This has resulted in many civilian deaths, casualties, homelessness, and property damage in both countries.
This war is of great concern to India because Iran is India’s prime means of communication in Central Asia. India has invested billions in Iran’s ‘Chabahar’ port to establish a direct connection with Central Asia and made the port a competitor to Pakistan’s ‘Gwadar’ port. Central Asia is crucial to India, not only in terms of energy security, but also because of its abundance of rare earth minerals. The escalating tensions between Iran and Israel have shaken global stock markets causing India’s benchmark ‘Sensex’ to fall sharply. Experts have warned that Iran could close the strategic ‘Strait of Hormuz’ - a vital route through which 20-25 percent of global oil supplies pass, as well as a vital corridor for LNG (liquefied natural gas) shipments from Qatar and the United Arab Emirates. Qatar, in particular, is one of India's top LNG suppliers. Available information indicates that the Parliament of Iran has already decided to close the ‘Strait of Hormuz’ aimed at stopping the movement of crude oil to different countries from other countries of this region as well, inflicting the price-rise of crude oil immediately by about 3% ( to 79 dollar per barrel till yesterday ) .
If the war drags on, the risk of inflation could spark new instability in India, posing a profound economic challenge for India, which relies on imports for the bulk of its fuel. Analysts say any disruption around the ‘Strait of Hormuz’ would disrupt oil shipments from Iraq, Saudi Arabia and the United Arab Emirates (India's main oil suppliers). The conflict has already pushed up global oil prices, and tensions are likely to rise. Analysts predict that if the current war continues for a few more days, oil prices could reach $120 per barrel, leading to inflation and a widening current account deficit, which would have a significant impact on India's economy. High oil prices would also affect transportation costs, leading to higher prices for goods and services, which could indirectly squeeze the budgets of countless households and affect economic growth.
The war would damage India's ‘trade routes’. A larger conflict could hurt India's overall exports as cargo ships would have to use the ‘Cape of Good Hope’ route instead of the vital ‘Red-Sea route’. This would mean more time and higher costs. For example, when the ‘Houthi’ rebels were attacking ships in the Red Sea, the crisis increased shipping costs. Also, as ships become harder to find and more accessible for long-haul travel, the cost of freight would increase, leading to inflationary pressures. Instability would not only increase oil imports, it could also extend beyond trade. An Iran-Israel war would jeopardize India's connectivity plans and hamper the long-awaited progress of the international North-South Corridor. The impact of the war could hamper efforts to normalize trade in the Red-Sea. Shipping traffic on the route shrank dramatically last year due to ‘Houthi’ attacks, but recently, about 30 percent of ships have resumed using the route. But the renewed tensions will also increase insurance premiums, which will affect Indian exports to West Asia and Europe. The Global Trade Research Initiative (GTRI) said in a report that India has significant trade relations with both the warring countries. In FY-25, India exported goods worth $1.24 billion to Iran and imported $441.9 million. The report noted that trade with Israel was even higher, with exports of $2.15 billion and imports of $1.61 billion. But even more important than this bilateral flow is India's dependence on the region for energy; India transports about two-thirds of its crude oil and half of its LNG imports through the ‘Strait of Hormuz’, which Iran has now threatened to close. Any obstruction or temporary disruption in the ‘Strait of Hormuz’ would sharply increase oil prices, shipping costs and insurance premiums - fuelling inflation, putting pressure on the rupee and complicating India's financial management. Regional tensions would also sever ties between India and Afghanistan, which trade through ‘Chabahar’. In this situation, China would quickly take India's place in Afghanistan, as it has long sought to do. The recent China-Pakistan-Afghanistan trilateral dialogue was the latest example of Beijing's efforts.
Iran is the third-largest buyer of Indian ‘Basmati’ rice - but war is likely to reduce its exports. ‘Basmati’ rice prices, which have increased by 15-20% in the last two months, are expected to fall as exports to Iran are affected by the ongoing conflict with Israel. According to the Agriculture and Processed Food Export Development Authority (APEDA), Iran is the third largest buyer of Indian basmati rice after Saudi Arabia and Iraq. In 2024-25, the value of India's basmati rice exports to Iran was Rs 6,374 crore, which is 12.6% of India's total basmati exports for the period. Experts believe that if the war continues for a long time, everything from food to transportation would suffer immensely.
The war could also pose a significant security risk to the lives of million Indians living and working in Gulf including the UAE, Saudi Arabia and Qatar etc leading to the loss of jobs and impacting the remittance inflow to many families in India as well. With a significant number of Indians living in Israel (around 18,000) and Iran (around 10,000), this war can imperil their security. The Indian government has already issued a ‘travel advisory’ and is closely monitoring the situation to ensure the safety of its citizens. The Indian embassy authorities in Israel said that all Indians are safe so far and they are monitoring the situation. The Indian government is making arrangements to bring everyone back home. Meanwhile, an Israeli attack on Iran would further increase Pakistan's strategic importance. A disabled Iran would not be favorable for India, but it could provide Pakistan with more advantages within the region. Despite being an Islamic country, Iran does not maintain strong relations with Pakistan; instead, Iran is more important to India as it seeks to compete with the China-Pakistan agenda in the region. Bilateral relations between Iran and Pakistan have deteriorated in recent years, with both sides even engaging in border attacks in January 2024 over allegations of harboring terrorist groups across the border, and Pakistan has closed its border with Iran since the recent outbreak of war. If tensions between Iran and Israel escalate, Pakistan - and its long border with Iran - would become a valuable geopolitical asset for the USA. This could lead to increased US military and financial aid to Pakistan, which India would undoubtedly oppose.
The aviation sector faces instability after the outbreak of the war. Iran and Israel closing their respective airspaces could have an impact on the global aviation industry, including India. In a post on its social media handle X, Delhi Airport said, "Delhi Airport operations are running smoothly. However, due to the changing airspace conditions in Iran, Iraq and neighbouring regions, some flight schedules have been affected. "The massive changes and diversions will result in longer flights for several airlines operating in West Asia and its beyond, with potential delays and increased fuel costs. Meanwhile, Air India has also said that more than a dozen of its flights have been diverted or turned back. The war can trigger sectarian rhetoric or protests within India and political parties would leave no stone unturned to exploit the situation keeping in view the vote bank politics. A broader Middle East war could embolden extremist’s elements globally including the sensitive regions of Jammu and Kashmir warranting tightened security.
Most analysts believe that the war will not have a major economic impact on India unless it escalates into a larger and regional war. A senior government official told the Economic Times that India is in a strong position to wither any such global crisis without much damage, given its strong macro-economic fundamentals. Banking and markets expert Ajay Bagga also agrees with this view. Speaking to news agency ANI, he said, “The two countries, which are located 700 km apart, are creating a major risk-off sentiment and global geopolitical instability. Like the short-term impact of the Gaza conflict, markets will ignore the Israel-Iran conflict in the coming weeks as the borders are defined and the risk of regional war is reduced”.
India maintains friendly relations with both Israel and Iran, which is the result of a delicate balancing act that has been going on for decades. India has strengthened ties with Israel, especially in the areas of defence and technology, but she also values the historical and cultural links with Iran. The intensity of the war in the coming days may also force India to take a more assertive stance, which could alienate one of its partners. This balancing act is crucial as India needs to maintain its influence in the region and protect its strategic interests. During an armed conflict, maintaining a balanced relationship with two countries of differing views is a big challenge for India. As tensions between the two countries rise and the USA joins the war, India is closely watching and observing the developments - because a full-scale war would have significant implications for India's overall development - from political, diplomatic, military, trade and economic standpoints.
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