Impact of US-Israel-Iran Conflict on Indian Industries: Rising Costs and Supply Chain Disruptions

The ongoing geopolitical tensions involving the US, Israel, and Iran are significantly impacting Indian industries by driving up input costs and disrupting supply chains. As oil prices soar and logistics face challenges, companies across various sectors, including airlines and chemicals, are bracing for sustained inflation and margin compression. Economists warn that both direct and indirect cost pressures are emerging, with micro, small, and medium enterprises particularly at risk. Even if the conflict eases, the normalization of supply chains may take time, prolonging the economic strain on businesses. Read on to understand the broader implications of these developments.

By Narendra Chaudhary Mar 19, 2026, 11:14 IST

Rising Costs Due to Geopolitical Tensions

The ongoing conflict involving the US, Israel, and Iran is creating significant cost pressures for Indian businesses, potentially exacerbating raw material shortages and disrupting supply chains across various sectors. With oil prices on the rise and logistics facing challenges, companies are preparing for a prolonged increase in input costs, which could lead to reduced profit margins and heightened inflation in the near future. Industries such as airlines, chemicals, fertilizers, paints, tires, ceramics, synthetic textiles, and automotive components are anticipated to be particularly affected, according to a report.

Economists highlight that the impact is both direct and indirect. Directly, the surge in crude oil and natural gas prices is elevating the costs of petrochemical-related inputs utilized in manufacturing. Indirectly, increased freight costs, shipping delays, higher insurance rates, and cargo rerouting are adding further financial strain. Additionally, a depreciating rupee is worsening the situation by making imports pricier, especially for sectors reliant on global supply chains.

Data from S&P Global Market Intelligence reveals early signs of stress, with the input price index reaching a 15-month peak of 54.7 in February, indicating a significant rise in cost pressures. Analysts point out that sectors heavily reliant on petroleum products, such as air transport, trade, electricity, logistics, agriculture, and chemical manufacturing, are especially at risk. For example, nearly half of the input costs in air transport and trade are tied to petroleum products, heightening their vulnerability to energy price fluctuations.

The inflationary effects are expected to be more significant in wholesale prices compared to retail prices due to the greater influence of fuel and energy in the Wholesale Price Index (WPI). Wholesale inflation, which already reached an 11-month high of 2.13% in February, is anticipated to rise further as elevated crude prices impact manufacturing costs. Projections suggest that WPI inflation could reach 3.5–3.7% in March, with some estimates indicating an average WPI inflation of 4–5% for FY27 if current trends continue. A 10% increase in crude prices alone could elevate headline WPI by 100–150 basis points.

Key industrial inputs are already showing signs of pressure. Prices for metals and materials like copper, aluminum, brass, and PVC cables have seen double-digit increases, reflecting the ripple effects of global supply chain disruptions. These rising input costs are expected to affect various sectors, from construction and infrastructure to consumer goods and automotive manufacturing.

For businesses, the challenge lies in managing the balance between passing on costs and maintaining demand. While robust consumption trends—partly driven by GST rationalization and steady economic growth—might enable companies to transfer some of the increased costs to consumers, complete pass-through is unlikely. This situation means that firms will need to absorb some of the financial impact, leading to margin compression, particularly in sectors sensitive to price changes.

Micro, small, and medium enterprises (MSMEs) are especially vulnerable due to their limited pricing power and smaller financial reserves. Unlike larger corporations, MSMEs may find it difficult to absorb rising input costs or renegotiate supply contracts, making them more susceptible to ongoing disruptions.

Even if the conflict de-escalates soon, economists warn that normalizing supply chains will not happen immediately. Restarting production at affected facilities, stabilizing shipping routes, and replenishing inventories could take weeks or even months. Consequently, the cost pressures initiated by the conflict are likely to persist into the first quarter of FY27, keeping inflation and corporate margins under significant strain.