Nimish Seth runs a factory in Nashik producing hard luggage. He says he had never imagined the Iran war would make him consider shutting operations. Raw plastic, the petroleum-based input for moulded luggage, is imported from the Gulf or sourced from Reliance Industries (RIL). What was selling at Rs 100 a kilogram, has shot up a week ago due to supply shortages to Rs 145 a kg. “We can’t absorb this high input cost. Once the current stocks are consumed, we may have to suspend production,” Seth told this writer.
It is not just oil shocks. As the US-Israel war against Iran and Lebanon grinds on, India’s industrial supply chain is under threat. In 2025 it imported nearly $100 bn worth of goods from the Middle East, from fertilizers and petrochemicals to industrial minerals. Disruption of these imports is exposing sectors from farming and plastics to construction and diamond cutting to supply shocks.
The Iran war is more dangerous than it looks. The earlier President Trump’s prediction of a five-week war, have now been replaced by “we are in it for as long as it takes.” The US President is not ruling out boots on the ground either. Unfortunately, the objectives of this assault on the Middel-East are not clear even to those who have embarked on it.
Iran is in bad shape but it is not a walkover. It has exacted heavier damage than the West would like to admit. Most of US’ West Asian embassies and consulates have been hit and are closed. Radars in Jordan and the UAE have been put of commission. The Middle-East is in panic and there is a stampede of hundreds of thousands of expats trying to get out.
Diaspora remittances hit
The war is closer than we think. An Iranian frigate has been torpedoed to the bottom of the ocean off the coast of Sri Lanka by an American submarine. India did not cover itself with glory by not protecting the vessel. After all, it was in Visakhapatnam at India’s invitation. The frigate left Indian shores on 26 February, and was believed to be unarmed. There is not a word to condemn the US attack.
We have been caught up in the US’ sinister imperialist machinations and the Indian government does not know which way to turn. After going after India for buying Russian crude, India has now been “given permission” for 30 days to buy Russian oil stuck at sea to stabilize global prices. It is a cringe moment for India. Is it fair the 4th largest economy in the world is having to seek U.S. permission to buy crude? And what if tomorrow Donald Trump changes his mind and punishes India for overshooting his ‘permissions’?
The war has put the diaspora economy on the brink. Just the 6 states of the Gulf Co-operation Council (GCC) -- Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman and Bahrain -- collectively account for 10 million Indians, the largest concentration of emigres abroad. They also continue to be the largest source of remittances for families back home, accounting for 38% of the total inflows -- or $51 billion of the $135 billion that was remitted last fiscal.
With the war, jobs are evaporating, and the flow of money to families in states like UP, Kerala and Tamil Nadu has been disrupted.
India is the largest importer of liquefied natural gas (LNG), 40-45% of it coming from Qatar. Now, with the closure of Qatar’s Ras Laffan facility after some Iranian drone strikes, gas supplies are in jeopardy. Our stockpiles are just worth 15-30 days of consumption. This has impacted Indian gas distributors including Petronet LNG, GAIL, and Indian Oil Corp, who have been forced to reduce gas supplies (CNG) for piped cooking gas and vehicles. This could also mean higher prices and inflation.
Oil and inflation
There are long-term implications in respect of crude oil too, since India imports 85-90% of her requirements. Most of this, or about 55%, passes through the Strait of Hormuz, a 33-kilometer chicken’s neck which Iran controls. Disruption of supply, higher risk and costlier freight charges has spiked Brent crude prices to $84 a barrel, a rise of 15% over pre-war levels.
In an interview with Financial Times on Friday, Qatar’s energy minister, Saad al Kaabi said Gulf oil producers may be forced to shut down production within days as shipments are frozen and storage tanks in the Persian Gulf are filling up fast. This could drive up the price of Brent crude to $150 a barrel, he predicted.
India has stocks for 40-45 days of consumption. However, a long-term conflict will seriously hit budgetary projections. Every $1-per-barrel increase in the cost of crude adds $2 billion to our annual import bill, which touched $137 billion last fiscal.
Growth and inflation both are at stake. Some analysts are of the view if oil prices remained above $90 to $95 a barrel for three to four quarters in a row, India's expected 7%-plus economic growth in the next financial year will slip substantially and come closer to 6.5%. Simultaneously, a sustained $10 increase in oil prices could widen India's current account deficit by 0.5% of GDP and add 35 basis points to retail inflation.
The only answer to the mayhem is: Stop the war!