Escalation of Iran-Israel Conflict: Experts Caution on Potential Cascading Effects

The ongoing conflict between Iran and Israel is raising alarms about potential disruptions to India’s trade with the West Asian region. Experts have noted early signs of export challenges and increased risks associated with shipping and insurance. As the situation escalates, the ramifications could extend beyond Iran and Israel, potentially affecting India’s exports to countries like Iraq, Jordan, Lebanon, Syria, and Yemen.

Impact on Trade with Iran and Israel

The conflict has already begun to affect India’s trade relations with both Iran and Israel. Sharad Kumar Saraf, founder chairman of Technocraft Industries, expressed concerns about the situation, stating that his company is currently withholding shipments to both nations due to the escalating tensions. India exported goods worth approximately $1.24 billion to Iran in the fiscal year 2025, with significant exports including Basmati rice, bananas, soya meal, Bengal gram, and tea. Conversely, trade with Israel was even more substantial, amounting to $2.1 billion in exports and $1.6 billion in imports during the same period. Experts warn that a prolonged conflict could dampen demand from Iran and squeeze Indian exporters, particularly affecting perishable goods that are vulnerable to delays and rising insurance costs.

Strategic Vulnerabilities in Shipping Routes

The recent U.S. airstrikes on Iran, aimed at curbing its nuclear ambitions, have heightened security concerns, especially around the Strait of Hormuz. This critical shipping lane is vital for India, as it handles 60-65% of the country’s crude oil imports. The Global Trade Research Initiative (GTRI) has highlighted that any disruption in this area could severely impact India’s energy security, leading to increased shipping costs and inflation. Ajay Srivastava, founder of GTRI, emphasized that any interruptions to shipping lanes, port access, or financial systems in this corridor would significantly disrupt India’s trade flows. The potential for increased shipping and insurance costs poses a serious threat to India’s trade recovery.

Broader Trade Implications in West Asia

India’s trade with the broader West Asian region, which includes countries like Iraq, Jordan, Lebanon, Syria, and Yemen, is substantial, with exports totaling $8.6 billion and imports reaching $33.1 billion. The ongoing conflict could jeopardize these trade relationships, particularly as tensions rise. The GTRI has warned that the impact of the conflict could extend beyond immediate trade with Iran and Israel, affecting the entire region. As the situation develops, Indian exporters may face challenges in meeting demand, especially for perishable goods that require timely delivery.

Global Shipping and Economic Risks

The current conflict is exacerbating already strained global shipping routes. Attacks by Houthi rebels in Yemen have disrupted commercial movement through the Red Sea, which is crucial for India’s trade with Europe and the United States. Approximately 80% of India’s European trade passes through this route, which also handles a significant portion of global container traffic. The World Trade Organization has revised its outlook for global trade, projecting a contraction of 0.2% in 2025, down from earlier growth predictions. Experts caution that the ongoing Iran-Israel conflict, coupled with the uncertain impact of U.S. involvement, could further derail India’s trade recovery and energy security, posing significant challenges for the nation’s economy.

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