Geoeconomic Fallout of the US-Israel-Iran Conflict on India | 12 Mar 2026

Source: IE 

Why in News? 

The US–Israel conflict with Iran has disrupted global supply chains and exposed India’s vulnerabilities in energy, trade, and inflation, threatening its “Goldilocks” balance of high growth and low inflation. It also creates a foreign policy dilemma for India’s strategic autonomy, as it maintains ties with the US, Israel, and Iran.

What are the Implications of US-Israel conflict with Iran on India? 

• Energy Security Under Severe Threat: India imports over 85% of its crude oil and a significant portion of its Liquefied Natural Gas (LNG), with the lion's share originating from Saudi Arabia, Iraq, the UAE, and Qatar. 
  • The disruption of the Strait of Hormuz has paralyzed the outward flow of oil, and LNG from these Gulf nations.  
  • The crisis exposes India’s critically low shock-absorption capacity. While China has aggressively stockpiled 110–140 days of import cover, India’s Strategic Petroleum Reserves (SPR) hold a mere 5.33 million metric tonnes, providing only a few days of consumption cover. 
  • Surging crude prices (up by 15%) drive "imported inflation" and widen the Current Account Deficit which can derail India's expected 7%+ economic growth. 
• India’s LPG Vulnerability: India is the second-largest LPG consumer in the world, largely due to the expansion of clean cooking access under the Pradhan Mantri Ujjwala Yojana. 
  • Around 60% of India’s LPG demand is met through imports, as domestic production remains limited. 
  • Major imports come from UAE, Qatar, Saudi Arabia and Kuwait, and most LPG shipments pass through the Strait of Hormuz, making supply highly vulnerable to regional conflict or blockade. 
  • India’s underground LPG storage is about 1.4 lakh tonnes, enough for less than two days of consumption, while daily demand is around 80,000 tonnes, with over 85% used by households. 
  • After invoking the Essential Commodities Act, 1955,  the government directed refineries to maximize LPG production by diverting propane and butane streams, increasing domestic output by about 25%, with the supply prioritized for household consumption and gas supplies being restricted for commercial users. 
    • As a result, commercial users like hotels and restaurants in major cities face shortages, higher prices, and waiting periods of up to 25 days for new LPG bookings. 
• Essential Commodities Act, 1955: India consumes around 195 Million Metric Standard Cubic Meters per Day (MMSCMD) of natural gas, with nearly half imported, making supply vulnerable to disruptions in Hormuz. 
  • India has invoked the Essential Commodities Act, 1955 to prioritise natural gas supply after disruptions in LNG shipments.  
  • Under the new allocation plan, domestic Piped Natural Gas (PNG), Compressed Natural Gas (CNG) and LPG production will receive 100% supply, fertilizer plants 70%, and industries 80%, while refineries may receive about 65% of previous consumption.  
• Fertilizer Threat:  India lacks mineable reserves for complex fertilizers. It relies heavily on Oman, Saudi Arabia, and Qatar for merchant ammonia; Oman, the UAE, Qatar, Kuwait, and Saudi Arabia for sulphur; and Jordan for phosphoric acid and rock phosphate (crucial for Diammonium Phosphate (DAP)).  
  • Furthermore, domestic urea plants rely on LNG imported from Qatar and the UAE. 
  • Currently, India has a comfortable stockpile (e.g., 5.5 million tonnes of urea as of late February 2026) as the Rabi season concludes and the Kharif season is still months away (June to October). 
  • If the blockade outlasts this buffer window, the government will be forced to strictly divert natural gas away from industrial/power sectors to prioritize domestic fertilizer production and city gas distribution, which is crucial to sustain agricultural output and national food security. 
• Food and Farm Exports: According to the Global Trade Research Initiative (GTRI), nearly USD 11.8 billion worth of Indian food and farm exports to the west Asia are at risk. 
  • Countries like Saudi Arabia, Iraq, the UAE, and Iran are the primary buyers of Indian Basmati rice. Currently, over 3,000 shipping containers are stranded at domestic ports (like Kandla and Mundra) or stuck in transit. 
  • India exported about USD 11.8 billion worth of agricultural and food products to West Asia in 2025, accounting for over one-fifth (around 21–22%) of India’s total agri exports. 
    • Major export items include cereals, fruits, vegetables, spices, dairy products, and processed food. 
    • Export disruptions could impact farmers and food processors across states such as Punjab, Haryana, Uttar Pradesh, Andhra Pradesh, Telangana, and Maharashtra. 
  • Exporters are facing pressure from rising marine fuel oil prices, higher freight costs, and mounting demurrage charges, and are urging the government to declare Force Majeure to avoid penalties for shipment delays caused by the crisis. 
• Core Industrial Sectors: 
  • Construction & Cement: India sources 68.5% of its imported limestone and 62.1% of its imported gypsum from nations like Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE.  
    • Supply shocks here will directly inflate domestic cement prices and stall infrastructure projects. 
  • Steel Production: A significant portion of India's steel industry utilizes the Direct Reduced Iron (DRI) route, which runs on natural gas.  
    • Disruptions in LNG shipments from Qatar and the UAE will curtail domestic steel output. 
  • Manufacturing & Gems: India imports over 50% of its copper wire (vital for power transmission) from the Gulf region.  
    • Additionally, India's diamond processing hub in Surat faces raw material shortages, as over 40% of its rough diamonds are imported from the UAE and Israel. 
• Rupee Depreciation:  The Indian Rupee has weakened to record lows, prompting the Reserve Bank of India to intervene by deploying USD 15–20 billion from its USD 730 billion foreign exchange reserves to stabilize the currency. 
• Safety of Indian Nationals in West Asia: India has a large diaspora of about 1 crore people in GCC countries sending over USD 51 billion annually in remittances, whose safety remains a priority for India. 
  • Indian nationals were affected by attacks on merchant ships. Stranded tourists and transit passengers were assisted to return via flights from Muscat, Riyadh, and Jeddah. 

What Measures can India take to Mitigate the Impacts of the West Asia Conflict? 

• Accelerated Diversification: While India has diversified its crude basket by importing from Russia, it must further expand long-term contracts with suppliers in Latin America (Brazil, Guyana), West Africa, and the United States to reduce over-reliance on the Strait of Hormuz. 
• Expand Strategic Petroleum Reserves (SPR): India can increase Strategic Petroleum Reserves to meet the global benchmark of 90 days of oil imports, as current combined reserves cover roughly 70–75 days.  
  • Larger underground storage facilities would provide a buffer during geopolitical disruptions or supply blockages. 
• Fast-tracking the Green Transition: Aggressively scaling up the National Green Hydrogen Mission and expanding domestic renewable capacity will structurally reduce the baseline demand for imported fossil fuels. 
  • Since India has already achieved key renewable capacity milestones, the focus should shift to removing regulatory, grid, and storage bottlenecks and ensuring full utilisation of existing renewable energy resources 
• Expand Domestic Gas Production: Accelerate exploration under policies like Hydrocarbon Exploration and Licensing Policy (HELP) to increase domestic natural gas output. 
• Scaling Alternative Fertilizers: To drastically cut dependence on imported ammonia and LNG from the Gulf, the government must aggressively promote the domestic production and nationwide adoption of Nano Urea and Nano DAP. 
  • The PM Programme for Restoration, Awareness, Nourishment and Amelioration of Mother Earth (PM PRANAM) must be utilized to financially incentivize states to reduce their overall consumption of imported chemical fertilizers and shift towards bio-fertilizers and organic farming. 
• Invoking Force Majeure: The Ministry of Commerce must officially recognize the conflict and subsequent port congestions as a Force Majeure event.  
  • This legal protection will shield Indian exporters from severe financial penalties and contract cancellations by foreign buyers. 
• Create an ECGC 'War-Risk' Insurance Pool: The skyrocketing marine insurance premiums for the Red Sea and Strait of Hormuz are bankrupting MSME exporters. The Export Credit Guarantee Corporation (ECGC) must immediately establish a sovereign-backed "War-Risk Insurance Pool" to subsidize these premiums and keep Indian exports competitive. 
• Pivot to the Eastern Maritime Corridor (EMC): To bypass the volatile Middle Eastern chokepoints entirely, India must aggressively operationalize the Chennai-Vladivostok Eastern Maritime Corridor.  
  • This route can safely secure Russian crude oil, coal, and fertilizers via the relatively stable Indo-Pacific and South China Sea waters. 

Conclusion 

India’s transition from a vulnerable importer to a resilient economic power requires shifting from 'just-in-time' supply chains to 'just-in-case' strategic buffers, leveraging maritime independence, captive overseas assets, and rupee-denominated trade architectures.