The escalating Iran-US-Iran war is sending economic shock waves across the Middle East, with potential consequences for India’s economy.
India’s dependence on the region is unusually deep. Nearly half of its crude oil imports pass through the Strait of Hormuz, the narrow Gulf waterway now at the centre of military tensions. The region is also home to about 10 million Indian workers who send billions of dollars in remittances every year.
A prolonged crisis could therefore affect India on several fronts — energy supplies, inflation, remittances, trade flows and strategic interests, a bbc.com report shows.
The Middle East accounts for:
55 percent of India’s crude oil imports
38 percent of its remittance inflows
17 percent of its exports
With the war threatening shipping routes and regional stability, policymakers in New Delhi are closely monitoring developments.
India imports nearly 90 percent of the crude oil it consumes, making the economy highly vulnerable to disruptions in global energy supply chains.
Around 2.5–2.7 million barrels per day of India’s crude imports — roughly half of total shipments — normally travel through the Strait of Hormuz from suppliers such as Iraq, Saudi Arabia, the UAE and Kuwait.
If global crude prices rise sharply, the effect could quickly feed into domestic inflation. Analysts estimate that every $10 increase in oil prices could push India’s inflation up by about 0.2–0.25 percentage points if the cost is passed on to consumers.
However, crude oil may not be the most immediate concern.
Energy analysts say liquefied petroleum gas (LPG) and liquefied natural gas (LNG) are potentially more vulnerable because India relies heavily on imports for both fuels.
Key vulnerabilities include:
India imports 80–85 percent of its LPG, making it the world’s second-largest LPG importer after China
Most LPG shipments come from Gulf producers and pass through the Strait of Hormuz
India imported about 25 million tonnes of LNG last year, with roughly 14 million tonnes transported via Hormuz
Unlike crude oil, India has no significant strategic reserves for LPG, and stocks held by refiners and distributors could cover only two to three weeks of demand if imports are disrupted.
Crude oil supplies are relatively more secure. India holds roughly 100 million barrels in refinery and commercial inventories, enough to provide about 30–35 days of supply.
If necessary, India could also increase purchases from Russia, the US, western Africa and Latin America. But shipments from those regions take 25–45 days to arrive, compared with just five to seven days from the Gulf, raising freight costs and extending supply chains.
India’s economic relationship with the Gulf extends far beyond energy imports.
Around one crore Indians live and work in the six Gulf Cooperation Council countries — Saudi Arabia, the UAE, Qatar, Kuwait, Oman and Bahrain. This diaspora forms a critical pillar of India’s external finances.
India received $135 billion in remittances in 2024–25, maintaining its position as the world’s largest recipient of overseas transfers. These inflows finance nearly half of India’s merchandise trade deficit and support millions of households.
The Gulf region accounts for a large share of these remittances. Indian workers dominate sectors such as construction, services, energy and increasingly skilled professions.
Some Indian states are especially dependent on these flows. Kerala alone receives roughly one-fifth of India’s total remittances, highlighting how deeply parts of the country rely on Gulf migration.
job disruptions for migrant workers
evacuations if security conditions deteriorate
slower remittance flows into India
Experts say the perception of the Gulf as a stable destination for migrant workers has already been shaken by the conflict.
The conflict also threatens India’s broader strategic and economic interests in the region.
India has invested heavily in Iran’s Chabahar port, a project designed to give it direct trade access to Afghanistan and Central Asia while bypassing Pakistan.
However, US sanctions on Iran have complicated the project. Washington granted India a temporary waiver allowing operations at the port until April 26, 2026, but the war has added fresh uncertainty.
Trade could also face disruption. In 2025, India imported nearly $100 billion worth of goods from the Middle East, including fertilisers, petrochemicals and industrial minerals.
If shipping disruptions in the Strait of Hormuz continue beyond a week, the impact could spread beyond energy markets to several sectors:
fertilisers and agriculture
plastics and petrochemicals
construction materials
export industries such as diamonds
What begins as a regional conflict could therefore evolve into a broader supply shock for the Indian economy.
For now, India is taking a cautious approach while calling for de-escalation. But the deeper reality remains clear: few regions are as economically important to India as the Gulf, and prolonged instability there could have significant consequences for India’s economy and households.