With the Israel-Iran conflict intensifying, the government must urgently review energy risk scenarios, diversify crude sourcing and ensure strategic reserves are sufficient, think tank GTRI said on Sunday.

Due to the war, India is increasingly at risk of collateral economic fallout, with energy security, trade routes and key commercial interests facing growing uncertainty, the Global Trade Research Initiative (GTRI) said.

"The escalating hostilities and rising regional tensions are posing direct threats to India's strategic and economic links with West Asia," GTRI Founder Ajay Srivastava said, adding India has significant trade exposure to both warring nations.

In 2024-25, India exported goods worth $1.24 billion to Iran and imported $441.9 million in return. Trade with Israel was even more substantial, with $2.15 billion in exports and $1.61 billion in imports.

"But more critical than these bilateral flows is India's reliance on the region for energy: nearly two-thirds of its crude oil and half of its LNG imports pass through the Strait of Hormuz, which Iran has now threatened to close," he said.

This narrow waterway, only 21 miles wide at its narrowest point, handles nearly a fifth of global oil trade and is indispensable to India, which depends on imports for over 80 per cent of its energy needs.

He said that any closure or military disruption in the Strait of Hormuz would sharply increase oil prices, shipping costs and insurance premiums, triggering inflation, pressuring the rupee and complicating India's fiscal management.

The risks became even more immediate on June 15, when Iran fired missiles at Israel's Haifa port -- a facility handling over 30 per cent of Israeli imports and 70 per cent owned by India's Adani Ports, Srivastava said.

Initial reports indicate damage to port infrastructure and nearby refineries, raising fears of disrupted logistics and a spillover of conflict into Indian commercial operations, he said.

Meanwhile, Israel's June 14-15 strike on Houthi military leadership in Yemen has heightened tensions in the Red Sea region, where Houthi forces have already attacked commercial shipping.

"For India, this poses another serious risk. Nearly 30 per cent of India's westbound exports to Europe, North Africa and the US East Coast travel through the Bab el-Mandeb Strait, now vulnerable to further disruption," he noted.

He said that if shipping must be rerouted around the Cape of Good Hope, transit times could rise by up to two weeks, and costs could soar.

This would directly impact Indian exports of engineering goods, textiles and chemicals, while also raising input costs for key imports, he added.

"India, though not a party to the conflict, cannot afford complacency. The government must urgently review energy risk scenarios, diversify crude sourcing and ensure strategic reserves are sufficient," he said.

Published on June 16, 2025