Middle East Crisis Poses Broad Economic Risks to India Beyond Oil Dependence
The ongoing conflict involving the US, Israel, and Iran in the Middle East has escalated with recent missile and drone attacks targeting key energy and logistics facilities across the Gulf region. These developments raise alarms about potential disruptions to global supply chains, with India facing significant economic vulnerabilities that extend far beyond its reliance on oil.
Immediate Threats to Energy Imports and Inflation
Between March 1 and March 3, critical installations in Saudi Arabia, Qatar, the United Arab Emirates, and Oman were attacked, heightening fears that shipments through the Strait of Hormuz—a vital corridor for global energy trade—could be severely impacted. India's economy is particularly exposed, as West Asia supplies essential commodities worth approximately $98.7 billion annually.
Oil: The most immediate risk lies in petroleum imports, with India sourcing around $70 billion in crude oil and products from the region in 2025. Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), warns that any prolonged disruption could deplete India's 30-day stockpiles, driving up fuel prices, increasing transport and logistics costs, and fueling inflation, especially affecting farmers through higher diesel expenses.
LNG and LPG: Natural gas supplies are also at risk, with India importing $9.2 billion in liquefied natural gas (LNG) from West Asia, accounting for 68.4% of total LNG imports. LNG is crucial for fertilizer production, power plants, and city gas systems. Similarly, liquefied petroleum gas (LPG) imports totaled $13.9 billion, making up 46.9% of India's purchases and serving as a primary cooking fuel for millions. With reserves covering only about two weeks, supply interruptions could quickly affect household availability.
Broader Supply Chain Vulnerabilities Across Sectors
Fertilizers: India's agricultural sector relies on $3.7 billion in fertilizer imports from West Asia. Disruptions during crop cycles could reduce availability, increase government subsidies, and push up food prices, according to GTRI.
Diamond Trade: The diamond export sector is closely tied to Gulf supplies, with $6.8 billion in rough diamonds imported in 2025, representing 40.6% of total imports. Processed in centers like Surat, Gujarat, any interruption could slow manufacturing and impact employment in the jewellery industry.
Industrial and Construction Materials: Key inputs include $1.2 billion in polyethylene polymers for packaging and consumer goods, $483 million in limestone for cement production, and metals like direct reduced iron ($190 million) and copper wire ($869 million) for infrastructure and renewable energy projects.
Potential for Widespread Economic Shock
The GTRI report emphasizes that India's economy is deeply interconnected with West Asian supply chains. If shipping disruptions through the Strait of Hormuz persist beyond a week, effects could rapidly spread from energy markets to fertilizers, manufacturing inputs, construction materials, and export industries. This regional conflict threatens to evolve into a broader supply shock, underscoring the need for strategic preparedness to mitigate economic fallout.
