I acknowledge the heavy use of ChatGPT in doing the research for this blog post.
This appeared on Substack on May 6, 2026 https://anandanandalingam649613.substack.com/p/india-is-a-big-loser-in-the-israel?r=o7w77
India is a big loser in the unprovoked war conducted by Israel and America on Iran. The losses transcend both economics and politics. For a country that fashions itself as an economic superpower and a leader, perhaps the leader, of the Global South, developments in the war have shown it to be a timid and uninfluential country that is passively letting itself be subject to impacts of the war. India was silent when the attack on Iran started even though it had strong economic and strategic ties to the country (and the region) and it was clear on the outset that it would be affected quite adversely by the conflict.
India’s economic relationship with Iran is shaped by two major factors: energy trade (especially oil) and strategic connectivity projects. Although the relationship has fluctuated sharply over the last two decades, Iran remains strategically important for India’s energy security and access to Central Asia and Afghanistan. For many years, Iran was one of India’s largest crude oil suppliers. Before the U.S. sanctions in 2018–2019, Iran supplied roughly 10–12% of India’s oil imports. In fact, it could have been much higher but the Indian oil companies wanted to hedge their bets in case the U.S. once again imposed sanctions on Iran and tried to penalize countries that traded with it. Indian refiners preferred Iranian crude because: (1) it was competitively priced; (2) shipping terms were favorable; and (3) Iran often provided extended credit periods and insurance support. In addition to crude oil, Indian imports from Iran includes LPG, petrochemicals, fertilizers, and dry fruits. Before sanctions bilateral trade exceeded $15–17 billion annually.
However, after the United States withdrew from the nuclear agreement with Iran and reinstated sanctions in 2019, India shifted towards oil from Russia, Saudi Arabia and UAE and also decided it was important to find a workaround. The sticking point was that oil was traded in dollars, especially from West Asia, and the workaround had to involve either local currencies or another currency like the Chinese Renminbi. India continued to buy Iranian oil paid for in Indian rupees, and Iran used those rupees to buy Indian exports such as rice, tea, pharmaceuticals, machinery and some consumer goods. Stealthily, this became one of the world’s notable “non-dollar” trade arrangements. It should be noted that Russia and India also had a similar agreement for crude oil purchases. After the current war on Iran started, much of this trade has collapsed leading to some serious negative impacts on India. What could have been the beginnings of the Global South disentangling itself from the all-mighty dollar with India in a leadership position simply evaporated because India was too timid; not the marks of a global power.
India’s economy has been negatively impacted by the Israel-US war on Iran. One of the most dramatic moments came in March 2026 when 22 Indian-linked vessels carrying oil, LNG, and LPG became stranded near the Strait of Hormuz. The cargo involved was enormous: ~1.67 million tonnes of crude oil, ~320,000 tonnes of LPG, ~200,000 tonnes of LNG. The image of millions of tonnes of Indian energy cargo simply “floating and waiting” became symbolic of India’s vulnerability. Indian cooking gas became a national worry. The blockade unexpectedly created an LPG panic. India depends heavily on imported LPG for household cooking gas cylinders. As Hormuz traffic froze, LPG shipments were delayed, inventories tightened, and the government reportedly diverted supplies away from industry to protect household consumers.
Indian airlines suddenly faced a jet fuel shock. The blockade created shortages not only in crude oil but also in jet fuel and petrochemical feedstocks. Indian airline executives reportedly began recalculating routes, cutting margins, and considering fare hikes almost immediately. A missile hit near Hormuz quickly translated into more expensive Indian air tickets. One of the least-publicized but most serious worries involved fertilizers; that created fears for India’s planting season, food inflation, and subsidy costs. For policymakers, the crisis became not just an oil issue but potentially a food-security issue. One Indian analyst reportedly summarized the situation bluntly “You can diversify suppliers. You cannot diversify geography.”
Before Isarel and America started bombing Iran, inflation in India had been easing helped by lower food prices and moderating commodity costs. After the conflict started oil prices surged, freight and insurance costs increased, and inflation risks rose sharply. Some economists now estimate CPI inflation could rise toward 5-6% one of the highest in the world among major countries. The Indian rupee weakened sharply after the conflict intensified; the rupee fell to record lows around ₹95 per US dollar. Before the conflict the rupee had generally traded around ₹89 per USD. One Mumbai trader reportedly summarized the mood “Every drone strike near Hormuz shows up in USD/INR within minutes.” India is still expected to remain one of the fastest-growing major economies, but growth forecasts have been revised downward. Before the conflict many forecasts for FY2026–27 was around 6.5–7.0% After the conflict several agencies cut forecasts less than 6%. Thus, the Israel-US war on Iran has had significant macro-economic impact on the Indian economy. It has also put into jeopardy India’s strategic investments.
The most important non-oil economic project between India and Iran is the development of Chabahar Port in which India has invested at least $600 million, perhaps more. India even operates parts of the Shahid Beheshti terminal through India Ports Global Ltd under a long-term agreement with Iran. The Chabahar port is strategically critical for India because it gives India access to Afghanistan, Central Asia, and potentially Europe, and bypasses Pakistan, especially the Gwadar Port which has a very heavy influence of its builder China. India sees this as a major trade corridor alternative to routes controlled by Pakistan or China. The Chabahar project has repeatedly faced uncertainty because of U.S. sanctions on Iran. The U.S. proves its muscle by waiving the sanctions and then revoking the waivers multiple times creating a whole set of uncertainties. Of course, although India continues trying to preserve the project despite pressure from Washington, it allows the U.S. to create too much uncertainty by not being resolute enough.
Besides Iran, India is deeply involved with other countries in the conflict region. After it recognized the State of Israel in 1992, India has steadily expanded its trade relationship with the country. In 2024-25, India’s exports to Israel were approximately $2.13 billion, and India’s imports from Israel were approximately $1.33 billion for a total trade volume of ~$3.5 million, much less than the $15-17 billion trade with Iran. Main Indian exports to Israel included diamonds and precious stones, electronics, chemicals, textiles and apparel, and pharmaceuticals. Key exports from Israel to India, in addition to medical and optical equipment was in high-tech aerospace products and cybersecurity equipment. Israel is one of India’s largest defense suppliers. Over the past decade, India has imported billions of dollars worth of drones, radar systems, missile systems, surveillance technologies from Israeli firms.
In addition to close economic ties with Iran and the expanding economic ties with Israel, India is pivotal in the growth of the economies of Saudi Arabia and the United Arab Emirates. The Indian community in the UAE is estimated at roughly 3.5–4.0 million people making Indians the largest expatriate group in the UAE, and about 35% of the UAE population. The Indian population in Saudi Arabia is estimated at roughly 2.5–2.7 million. In addition to the 6-7 million Indians living and working in UAE and Saudi Arabia, an equal number work in other gulf countries like Qatar, Bahrain, Oman, Kuwait and Iraq. Indian workers in these Arab countries are predominantly in construction, oil and gas, infrastructure, transportation, healthcare and domestic work. There are also several professionals including bankers, engineers and doctors from India working there. Several of the most strategic mega-projects would come to a halt if the Indian professionals and labor left UAE and Saudi Arabia, not to mention Qatar.
India received $25-26 billion in remittances from workers in UAE and another $10 billion from Saudi Arabia; close to 30% of all remittances from abroad. The remittances are an enormous inflow, larger than many categories of foreign investment, and crucial for India’s foreign exchange reserves and household consumption. In many parts of India, remittances from the gulf states have a massive impact on household income support and poverty reduction. In addition, it supports the educational finance of poor families and provides relief from the need to be employed in much of rural India. Further, remittances are often stable, counter-cyclical, and less volatile than portfolio investment. It is a win-win situation for both India and the Arab states in West Asia. The West Asian countries rely on Indian labor for improving their infrastructure, medical and banking services, and even function smoothly in almost every sphere of their economies. India has significant leverage in West Asia and an interest in having stable region, quite unlike Israel and perhaps, the United States.
India is also well integrated into the U.S. economy. The United States is one of India’s largest trading partners, biggest export markets, largest sources of foreign investment, and most important technology collaborators. The U.S. has become India’s largest or second-largest trading partner in many recent years. India exports roughly $75–85 billion in goods and services annually to the United States. The U.S. exports roughly $40–50 billion in goods annually; India runs a significant merchandise trade surplus with the U.S. Major Indian exports include Pharmaceuticals, IT hardware/electronics, textiles & apparel, jewelry, engineering goods, chemicals, petroleum products and agricultural goods. India supplies a large share of generic medicines used in the U.S. Major U.S. exports to India include crude oil, LNG, aircraft, electronics, industrial machinery, medical equipment and defense equipment. The U.S. is the single most important market for Indian IT companies. The U.S. is among the largest foreign investors in India. Several large U.S. firms have major operations in India including Apple and GE and several are having new entries including Tesla and Applied Materials. Indian companies employ large numbers of Americans.
The U.S. increasingly sees India as a strategic technology partner, a supply-chain alternative to China, and a key democratic technology ally. India and the U.S. are beginning to cooperate on chip manufacturing, semiconductor supply chains, design ecosystems, and advanced electronics. The Indian American community is economically extremely influential. There are over 5 million people of Indian origin in the U.S. The U.S. is one of the largest single-country sources of remittances to India.
India has strong economic and strategic ties with the United States in addition to the other parties to the current conflict, Israel, Iran and countries in West Asia especially UAE and Saudi Arabia. One could argue that India is the best placed major country to be an intermediary between the different players in the Israel-America war on Iran. India has tried to follow a pathway of “strategic autonomy” maintaining ties with several countries in conflict with the U.S. including Iran and Russia, while avoiding direct confrontation with the many faceted U.S. sanctions policies. By trying to navigate a middle path and vacillating rather than being assertive, India has taken a back seat to the most important recent event in global politics. India had the chance to be the leader of the Global South and has “blown” it.
The country that has emerged as the Phoenix from the ashes of war is Pakistan, India’s purported “arch enemy”. Rather than India playing an important role in global affairs, Pakistan, a country that seems to be a failed state with one-tenth of India’s GDP, one-half the GDP per capital and one-sixth the population is now the leading figure in finding a resolution to this new war crisis. This is a far cry for India, a country wanting to be respected as a global leader. The icing on the cake for Pakistan and the most bitter of pills to swallow for India will be when the former country receives the Nobel Peace Prize from the Norwegian Academy. How far India has fallen! The near passive experiencing of the negative economic impact of the war, the inability to use its strong economic and strategic ties with each country involved in the conflict, and letting slip the potential leadership of the Global South, especially relegating it to Pakistan, India will be one of the big losers of the Israel, United States war on Iran.
Anand Anandalingam - Personal Web Site 