An escalating Iran–Israel war could push up freight and insurance costs on shipping routes and hinder efforts to normalise trade through the Red Sea, affecting Indian exports to West Asia and Europe. The Commerce and Industry Ministry is set to meet traders this week to take stock of the situation.
This comes as the deadly conflict between Iran and Israel entered its fourth day, fuelling fresh concerns over global trade, especially oil flows, amid fears that Iran could block the Strait of Hormuz—through which 20–30 per cent of global oil trade passes—in retaliation for Israeli attacks.
Freight and insurance costs could go up due to the ongoing war, but the route for Indian goods is away from the conflict zone. There has not been an immediate impact on Indian shipments but Commerce and Industry Ministry will assess the situation and meet exporters and shipping representatives this week.
The impact of the war is likely to derail efforts to normalise Red Sea trade. Shipping on the route had shrunk dramatically due to Houthi attacks last year, but recently, around 30 per cent of vessels had resumed using it. The renewed tensions will also raise insurance premiums, hitting Indian exports to West Asia and Europe.
The renewed instability could pose deeper macroeconomic challenges for India, extending beyond trade, especially given its growing reliance on oil imports. While India was forced to halt oil imports from Iran following US sanctions in 2019, Goldman Sachs estimates that Iranian supply could fall by 1.75 million barrels per day (b/d) for six months before gradually recovering.
A fall in prices of fruits, pulses, and cereals helped ease India’s headline retail inflation to a 75-month low of 2.82 per cent in May 2025. This trend prompted the Reserve Bank of India’s Monetary Policy Committee (MPC) to cut the policy repo rate by a larger-than-expected 50 basis points. However, the RBI cautioned that “monetary policy is left with very limited space to support growth”.
The Directorate General of Shipping had issued an advisory for all the Indian seafarers and Indian-flagged ships in Iranian ports or crossing through the Strait of Hormuz to be cautious, after Israel attacked Iran. It also advised seafarers to remain vigilant and avoid unnecessary movement, and adhere to local safety protocols and other regulations for their own safety.
