Key Highlights

U.S. strikes on Iranian nuclear sites threaten India’s $40 billion West‑Asia trade via oil, shipping disruptions.
Rupee and bond markets face pressure amid rising oil prices and geopolitical instability from Middle East escalation. 

The recent US air strikes on Iran's nuclear facilities have raised the stakes for India, as over $40 billion in trade with West Asian countries—including Iran, Iraq, Israel, Jordan, Lebanon, Syria, and Yemen—could be jeopardized.

Any disruption to important port operations, maritime routes, or financial channels in the area would "severely impact India's trade flows," increasing freight and insurance costs and creating new supply chain risks, according to experts like Ajay Srivastava of the Global Trade Research Initiative.

Around 65% of India's crude oil imports and 50% of its LNG imports come from energy shipments across the Strait of Hormuz. Tehran's decision to block the strait, which the Iranian parliament has approved in principle, could put a strain on the country's fiscal balance, raise India's import costs, and cause inflation.

Higher shipping insurance and freight charges would impact trade with Europe and the US, particularly along the Red Sea's Bab el-Mandeb route.

Brent crude prices have risen to around $77 per barrel, up from $69 before the mid-June hostilities began. According to Emkay Global, an annual increase of 35 basis points in India's CPI inflation would result from a $10 per barrel increase.

In response, India is increasing its imports of crude from Russia and looking into alternate shipping routes through the east for trade with the US and Europe. These calculated actions aim to lessen dependency on the Strait of Hormuz, a vulnerability that Petroleum Minister Hardeep Puri had previously noted.

Also Read: War Ripple Effect: 3 Major Challenges India May Face from Iran-Israel Conflict

India is simultaneously balancing its growing strategic ties with the United States, Israel, and Gulf Arab nations with its longstanding ties to Iran—through agreements on crude supply and Chabahar Port.