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The Iran-Israel conflict has further increased global economic uncertainties, impacting world trade, including India’s exports, as it is expected to drive up both air and sea freight rates, exporters say.
An anti-missile system operates after Iran launched drones and missiles toward Israel. Photograph: Amir Cohen/Reuters
They said that India’s exports to Europe and counters like Russia may get impacted due to this war.
If the conflict continues for long, the movement of merchant ships through routes such as Strait of Hormuz between Iran and UAE, and Red Sea would be affected.
“The war will further hurt global trade. The situation was gradually improving but now again the trade will be impacted.
“Our exports to Europe and countries like Russia may get hurt.
“Freight rates and insurance are expected to increase,” Federation of Indian Export Organisations (FIEO) president S C Ralhan said.
Indian export consignments gradually started moving through the Red Sea route but now again it would get impacted, he said.
The immediate fallout of the conflict that started on early Friday or June 13 will be freight and insurance charges going up after a period of calm as Red Sea routes were slowly coming back to normal, Mumbai-based exporter and Technocraft Industries Ltd founder chairman S K Saraf said.
If Iran-Israel war would continue for a week then the situation will be difficult for global trade, Saraf said, adding, “Iran and Israel too are our big trading partners.”
Cargo ships had gradually returned on Red Sea routes, saving them 15-20 days while moving to US and Europe from India and other parts of Asia.
“The merchant ships will again avoid the Red Sea which will lead to escalation of freight costs that will have to be borne by traders.
“If war would go beyond a week, it can push freight rates by about 50 per cent,” he added.
The present conflict that began with an attack on Israel on October 7, 2023 had brought cargo movement through Red Sea routes to a halt due to attacks by Houthi rebels on commercial shipping.
After the US intervened with attacks on the rebels, the firing on commercial ships stopped.
“Everything depends on whether the conflict remains localised or expands to include other countries. Its impact will be first felt in global crude oil prices,” FIEO director general Ajay Sahai said.
Apart from the Red Sea route, this time transit through Strait of Hormuz is another factor that is weighing on the world energy trade.
The Strait of Hormuz, located between Oman and Iran, connects the Persian Gulf with the Gulf of Oman and the Arabian Sea.
Around 21 per cent of global petroleum liquids consumption passes through that route.
China, India, Japan, and South Korea were the top destinations for crude oil moving through the Strait, Oman also uses this route to supply liquefied natural gas to India.
Only Saudi Arabia and the United Arab Emirates (UAE) have operating pipelines that can circumvent the Strait of Hormuz.
Last year, the situation around the Bab-el-Mandeb Strait, a crucial shipping route connecting the Red Sea and the Mediterranean Sea to the Indian Ocean, escalated due to attacks by Yemen-based Houthi militants.
Around 80 per cent of India’s merchandise trade with Europe passes through the Red Sea and substantial trade with the US also takes this route.
Both these geographies account for 34 per cent of the country’s total exports.
The Red Sea strait is vital for 30 per cent of global container traffic and 12 per cent of world trade.
India’s exports to Israel have fallen sharply to $2.1 billion in 2024-25 from $4.5 billion in 2023-24. Imports from Israel came down to $1.6 billion in the last fiscal from $2.0 billion in 2023-24.
Similarly, exports to Iran of $1.4 billion, which were at the same level in 2024-25 as in 2023-24, could also suffer. India’s imports from Iran were at $441 million in FY25 as against $625 million in the previous year.
The conflict adds to the pressure world trade was under after US President Donald Trump announced high tariffs.
The government is expected to hold meetings with exporters in the coming days to discuss the recent developments.
Based on the tariff war impact, the World Trade Organisation (WTO) has already said that the global trade will contract 0.2 per cent in 2025 as against the earlier projection of 2.7 per cent expansion.
India’s overall exports that had grown 6 per cent on year to $825 billion in 2024-25 were expected to touch $1 trillion by the end of this year, according to FIEO, and it could fall well short of this target due to geopolitical uncertainties.
