Israel’s attack on Iran early Friday has triggered worries about possible freight rate hike and trade route disruptions amongst Indian exporters already grappling with growing global uncertainties and US tariff woes.

The situation has also thrown a diplomatic challenge for India as both countries are friendly economic allies, with Israel supplying defence equipment and Iran promising connectivity through the Chabahar port.

Trade routes

“The biggest worry is about the trade routes. This time, both Suez Canal and Red Sea may be impacted. That will impact shipments to US, Europe and West Asia, besides Africa,” said Ajay Sahai, Director General, FIEO.

Any global disturbance is a worry for exporters as freight rates get affected, pointed out Sanjay Jain, textiles exporter and ICC National Textile Committee Chairman.

Jain said that freight rates had started returning to normal after the Yemen-based Houthis partially stopped their attacks on the Red Sea early this year but things may now change. “The worry is that attacks may again go up with escalation of war and if Iran retaliates, it could become a regional issue,” Jain said.

Sahai pointed out that it was not just sea routes, but air spaces were also closing, which was adding to exporters’ worry. The air space in Pakistan is closed for India and now the air space in Iran is also closed. FIEO had planned a business delegation to Jordan later this month which may need to be called off as air spaces are closed, Sahai said. Further, if the conflict affects oil prices, it would add to the woes, he said.

The diplomatic tight-rope walking that India may need to do while confronting the Israel-Iran military face-off would also pose a big challenge, experts said.

Chabahar port

Despite the US sanctions, India didn’t back off from Chabahar project in Iran as it has major interest in Central Asia which is doing very well, said Biswajit Dhar, Distinguished Professor, Centre for Social Development. The only way for connectivity to the region is through the Chabahar port.

At the same time, Israel was also a major economic ally and had become a steady supplier of defence equipment to India.

“For India, it will mean even more efforts at delicate diplomatic balancing. Now we are relying on Israel for our defence equipment. And In some ways Iran is emerging as one of our strategic partners from point of view of connectivity,” Dhar said, adding that none could be spurned.

Dhar said that a bigger problem would be if the Israel-Iran conflict escalates and entire West Asia is sucked into it. “If the entire Middle East gets involved, then the adverse impact that it may have on global trade and economy and also on India’s trade could be substantial,” he said.

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Published on June 13, 2025