Impact of Middle East Tensions on India's Economy: Crude Oil and Basmati Rice Exports at Risk
Economic Consequences of Rising Tensions
The escalating conflict following the Israel-US strikes on Iran is beginning to adversely affect India's economic interests in the West Asian region. This impact is particularly evident in two significant areas: the surge in global crude oil prices and a notable disruption in India's exports to Iran. Indian exporters are increasingly concerned, especially since Iran is the largest importer of Indian basmati rice. As the situation becomes more uncertain due to the ongoing conflict, trade activities have sharply declined, jeopardizing shipments and payments.
Ajay Bhalotia, director of Fortune Rice Limited and general secretary of the All India Rice Exporters Association, mentioned that prior to the onset of the war, Iranian importers had placed substantial orders for basmati rice. This surge in demand had led to an increase in basmati prices in Indian markets by approximately Rs 10 per kg. "Since the conflict began, exports of Indian basmati rice have nearly come to a standstill. Currently, a shipment of basmati rice is en route to Iran, but there is significant uncertainty regarding whether Iranian importers will be able to receive it under the current circumstances," Bhalotia stated.
Key Statistics from the All India Rice Exporters Association:
- Approximately 25% of India's total basmati rice exports are directed to Iran.
- Another 20% is exported to Iraq.
- Combined, these exports exceed 2 million tonnes of basmati rice valued at over $2 billion.
- In the previous year, India exported basmati rice worth $1.2 billion to Iran.
Exports to Iraq are also expected to be impacted due to the regional instability. The uncertainty surrounding Iran could further affect rice exports throughout Central Asia.
India's Crude Oil Supply Concerns
What About India's Crude Oil Needs?
India sources crude oil from over 40 nations, including the US, West Africa, and Latin America. This diversification allows India to adapt its supply chain based on global market conditions. However, oil shipments from the US or Latin America take significantly longer to reach India—approximately 25 to 45 days—compared to just 5 to 7 days from Gulf countries. This makes Middle Eastern oil more cost-effective and quicker to transport.
The ongoing crisis in the Middle East poses a risk to crude oil supplies through the Strait of Hormuz, which is responsible for 20-25% of the global crude oil supply daily. Recent data from energy analytics firm Kpler indicates that India's reliance on oil passing through the Strait of Hormuz has increased in recent months, particularly due to sanctions on Russian oil. Kpler's vessel tracking reveals that around 2.5 to 2.7 million barrels per day (mbpd) of India's crude imports transit through this strategic waterway, accounting for roughly 50% of India's total crude imports. The majority of this oil is sourced from Iraq, Saudi Arabia, the UAE, and Kuwait.
Additionally, there are worries that India's tea exports to Iran may also be adversely affected. In the fiscal year 2024-25, India exported tea worth nearly Rs 7 billion to Iran.