INDIA'S ECONOMIC TIGHTROPE: NAVIGATING THE ISRAEL-IRAN CONFLICT AND GLOBAL TARIFF WARS

The escalating tensions between Israel and Iran in 2025 pose significant multifaceted challenges for India, impacting its economy, energy security, trade, and welfare. India's heavy reliance on crude oil imports via the Strait of Hormuz exposes it to risks of soaring global oil prices, supply disruptions, and heightened inflation that could weaken its GDP growth and strain fiscal resources. Additionally, trade routes through the Red Sea face potential blockage, increasing freight and insurance costs, thereby affecting key Indian export sectors such as textiles, basmati rice, and chemicals. The large Indian diaspora in the Middle East confronts safety risks and potential job losses, threatening remittance flows vital for India's foreign exchange. Concurrently, ongoing tariff wars, particularly U.S. tariffs imposed in 2025 as a strategic move linked to India’s trade with Russia, have pressured Indian exports, further complicating economic resilience. This converging crisis necessitates India's adept diplomatic balancing and strategic policy responses to protect its national interests amid volatile regional and global dynamics.

- DR. S. KRISHNAN, MAYUR MAHAJAN & ANISHA SONWAL

The war between Iran and Israel will not be an Afghanistan or an Iraq war; this is a war that has greater relevance to the international trade, energy markets and inflation. As one of the largest oil traders, Iran and Israel also greatly influence geopolitics in the Middle East, and any conflict between the two countries may cut important trade routes and reverberate across financial markets. The possible consequences are of special concern to India. When oil prices rise as a result of supply chain shocks, it raises the chances of inflation of common commodities as well as transport fares and general stability of the economy. Moreover, an investor will feel uncertain, which will cause fluctuations in the stock market and uncertainty in other areas, including aviation, logistics, and energy. India might as well be required to review trade policy, diversify sources of energy, and create fiscal policies to control inflation, as policymakers and economists observe keenly. It is of great importance that businesses, consumers, and investors understand these dynamics. With this, we can learn the lessons of the previous wars and their economic consequences and expect more obstacles and get ready for more challenges and disturbances in the Indian trade and economic environment.

The Israel-Iran tensions have serious implications for India’s economy and welfare through multifaceted channels, including energy security, trade disruptions, impacts on the Indian diaspora, and broader geopolitical considerations. Added to this is a concurrent challenge from tariff wars, particularly involving US tariffs on Indian exports linked to geopolitical dynamics concerning Russia.