India’s trade with countries directly impacted by the conflict has faced significant challenges.

India’s trade with countries directly involved in the conflict in West Asia has suffered sharp declines and as the hostilities enter another phase, the country must remain vigilant and adaptable to the fast-changing geopolitical and trade landscape in the region, according to a trade policy think-tank.

India’s trade with countries directly impacted by the conflict has faced significant challenges. Exports to Israel dropped sharply by 63.5%, Jordan saw a 38.5% decline due to spillover effects, and Lebanon experienced a 6.8% decrease in January-July period, Global Trade Research Initiative said in its latest analysis.

Key regional players like Saudi Arabia, the UAE, Kuwait, and Qatar have thus far remained uninvolved in the conflict. This neutrality has allowed India’s trade with these Gulf Cooperation Council (GCC) countries to increase by 17.8% between January and July 2024 compared to the same period the previous year. Despite these challenges, India’s exports to Iran grew by 15.2%, as the country remains outside of the direct conflict.

Disruptions in key shipping routes, particularly through the Suez Canal and Red Sea, have forced vessels to take longer paths around the Horn of Africa, leading to a 15-20% increase in shipping costs. This has severely impacted the profit margins of Indian companies, particularly those exporting low-end engineering products, textiles, garments, and other labour-intensive goods, co-founder of GTRI Ajay Srivastava said. 

While India’s overall exports to the European Union grew by 6.8%, sectors like machinery, steel, gems and jewellery, and footwear have all suffered declines. Additionally, crude oil and petroleum imports fell by 32.38% in August 2024, driven by reduced demand from Indian refineries and lower orders from Europe.

India faces tough times ahead, particularly for industries reliant on high-volume, low-value exports, as rising freight costs are expected to strain trade further.

“However, there could be relief if Israel succeeds in neutralising the Houthis, the Iran backed Yemeni rebels. This could potentially ease disruptions along the Red Sea. Israel has already launched strikes against the Houthis in response to their actions,” Srivastava said.