The West Asian war has emerged as a defining stress test for India’s supply chains, laying bare the fragility of an economy deeply dependent on external flows of energy, raw materials, and trade routes.
What began as a regional conflict has swiftly disrupted critical transit corridors, unsettled commodity markets, and strained India’s resilience, with cascading effects that extend far beyond immediate price shocks.
At its core, supply chain disruption arises when demand or supply swings sharply, creating a profound imbalance between the two. Over the past decade, as supply chains have become increasingly globalised and relentlessly optimised for competitiveness, their risk profile has shifted dramatically, leaving them under constant strain and acutely vulnerable to geopolitical shocks.
The war in West Asia exemplifies this vulnerability, transforming localised instability into a global imbalance that reverberates across India’s energy security, agricultural output, industrial production, and consumer markets.
In early April, Prime Minister Narendra Modi convened a high‑level meeting of the Cabinet Committee on Security (CCS) to assess the implications of the conflict on key sectors of the Indian economy.
The deliberations spanned agriculture, aviation, shipping, logistics, and MSMEs, underscoring the government’s awareness that the crisis is not confined to energy alone but has the potential to ripple across every major sector.
Energy and agricultural strains
Energy remains the most visible fault line. The Strait of Hormuz, a lifeline for global oil and gas flows, has become a flashpoint. Since the outbreak of the war on February 28, oil prices have surged nearly 60 per cent, with crude climbing past $120 a barrel, creating inflationary pressures for economies already fatigued by years of monetary tightening.
By late April, oil reached its highest level since the 2022 Russia‑Ukraine crisis amid reports that President Trump was weighing additional military options against Iran.
For India, which imports close to 90 per cent of its crude, the impact is acute. The rupee has weakened past the 94–95 per USD mark, reflecting both elevated import costs and capital flight. Foreign portfolio investors withdrew nearly ₹1.8 lakh crore in 2026, the steepest outflow on record, amplifying currency volatility.
The Reserve Bank of India finds itself constrained; easing rates risks further depreciation, while tightening could choke growth. This macroeconomic bind underscores the fragility of India’s external sector.
With a fertiliser system closely tied to West Asian natural gas imports, with more than 60 per cent of supplies vulnerable to disruption, India’s agricultural supply chain is facing unpredictable risks.
Urea, which is critical for sustaining crop output during the Kharif season beginning in June, faces a heightened risk of shortage. The non‑availability of fertilisers and related chemicals does not remain confined to farms alone; it cascades into energy‑intensive industries such as paints, textiles, cement, and tyres, creating bottlenecks across production processes.
The Reserve Bank of India has already flagged declines in core industry output, with fertiliser, crude oil, coal, and electricity production falling to a 19‑month low. This convergence of energy and agricultural stress threatens food security and intensifies cost‑push inflation pressures across essential commodities, underscoring how disruptions in one sector reverberate through the wider economy.
Electronics, manufacturing, consumer markets under strain
The technology and electronics sector has emerged as one of the most visibly impacted areas of India’s economy, bearing the brunt of supply chain shocks triggered by the West Asian conflict. Strikes on Saudi Arabia’s Jubail petrochemical complex halted production of high‑purity polyphenylene ether (PPE) resin, a critical input for printed circuit boards (PCBs). SABIC, which supplies nearly 70 per cent of global PPE, has not resumed output, tightening availability worldwide. PCB prices have surged, compounded by shortages of copper foil and glass fibre.
For India’s smartphone industry, the consequences are stark: sales are projected to contract by 18 per cent in 2026, while average selling prices have risen 40 per cent. Consumers are increasingly turning to refurbished and grey‑market devices to avoid high costs and 18 per cent GST.
With 70 per cent of India’s retail smartphone market dominated by Chinese brands excluded from Production Linked Incentives, costs for end consumers continue to climb. This illustrates how geopolitical instability in the Gulf translates into consumer distress in India’s retail markets.
With memory and storage costs soaring alongside PCB shortages, the rise in mobile prices has become one of the most visible consumer‑level impacts of the crisis. Retailers report that buyers are delaying upgrades, opting for second‑hand devices, or shifting to the refurbished market to cope with the squeeze.
The exclusion of dominant Chinese brands from PLI incentives has further compounded the problem, leaving consumers with fewer affordable options and intensifying the upward pressure on handset prices. This shift in consumer behaviour reflects how global supply chain instability is reshaping India’s mobile ecosystem, pushing affordability out of reach and altering demand patterns in ways that could persist long after the immediate conflict subsides.
Shipping, logistics, and automotive pressures
Logistics and shipping vulnerabilities magnify these sectoral shocks. India’s reliance on CIF contracts means foreign sellers control shipping, leaving importers exposed during crises. While half of crude oil imports are on FOB terms, fertilisers such as urea are almost entirely CIF, making them among the first cargoes to face delays.
The insufficiency of India’s national fleet has become evident, with critical imports of crude oil, LPG, and coal dependent on foreign vessels. Freight rates have surged as global shipping capacity tightened, with lines prioritising lucrative routes to Europe and the US. Low‑margin Indian exports, particularly agricultural commodities, risk being sidelined, while high‑value electronics continue to move despite rising costs. Equipment shortages and stranded containers worsen bottlenecks, underscoring the fragility of India’s Gulf trade corridor.
In the automotive sector, extended disruptions raise production costs for both vehicle usage and manufacturing, and India’s reliance on imported lithium compounds its vulnerability. China’s early push into electric vehicles has insulated it from fuel shocks, with EVs now comprising over half of new car sales. In contrast, India’s EV penetration remains in single digits, leaving its transport sector exposed to fossil fuel volatility. Rising fuel prices magnify India’s lag in energy transition, highlighting a strategic gap in resilience compared to peers.
Consumer industries such as alcoholic beverages have also felt the strain. Glass bottle shortages, driven by reduced liquefied natural gas availability, have cut production by 35–40 per cent, raising packaging costs and slowing revenue growth to 5–7 per cent. This seemingly peripheral disruption underscores how energy shocks cascade into unexpected sectors, tightening margins and raising consumer prices across the board.
Macroeconomic outlook and humanitarian concerns
The broader macroeconomic picture is sobering. The RBI’s April analysis noted early signs of deceleration: port cargo volumes and air passenger traffic have declined, manufacturing PMI has fallen to a four‑year low, and services PMI slowed to a 14‑month low.
Petroleum consumption has moderated, largely due to suspended flights. The rupee’s weakness reflects both elevated energy prices and capital outflows, while the current account deficit is set to widen as imports rise in value even as exports falter. Cost pressures and uncertainty have eroded new orders and output, underscoring the fragility of India’s growth momentum.
To mitigate risks, India has permitted Russian insurers such as Gazprom Insurance and Rosgosstrakh to provide marine cover until 2027, bypassing Western providers constrained by sanctions. Dubai‑based Islamic Protection & Indemnity Club has also been allowed to operate. These measures reflect pragmatic diversification of risk management, but they remain stopgaps rather than structural solutions. The broader challenge lies in reducing dependence on volatile supply chains, strengthening domestic fleet capacity, and renegotiating trade contracts to balance FOB and CIF terms strategically.
The exit of the UAE from OPEC adds another layer of uncertainty. By leaving the cartel, the UAE seeks greater flexibility in managing oil production, but its departure destabilises global energy markets further. For India, this raises fresh concerns about supply reliability and price volatility, complicating long‑term energy security planning.
Finally, the humanitarian dimension cannot be overlooked. Thousands of Indian seafarers are stranded in the Persian Gulf, living under war‑like conditions with food rationing and limited water supply. Casualties have been reported, and the inability of ships at a standstill to generate fresh water has worsened living conditions. This human cost highlights the vulnerability of India’s maritime workforce, whose safety is directly tied to geopolitical stability in the Gulf.
For defence and deep‑tech sectors, supply chain vulnerabilities carry direct national security implications. The risks extend well beyond advanced components, affecting even basic hardware, “dumb” parts, and access to essential software suites, with companies facing the possibility of being cut off from critical inputs due to geopolitical decisions.
Rising oil prices linked to the Iran conflict have further driven up freight rates and the cost of chemical solvents used in drug manufacturing, increasing the expense of producing even basic medicines. That pressure has already rippled through the supply chain: raw material and solvent prices have surged, packaging costs have escalated, and manufacturers are burdened with higher logistics and insurance bills. While supplies have begun to ease, prices remain elevated, keeping margins under strain.
India’s government has responded with a mix of short‑term relief and longer‑term measures, from waiving import duties on key inputs to permitting limited price adjustments on essential supplies.
Yet officials caution that a prolonged crisis in the Middle East could begin to weigh not only on India’s exports to the region but also on its access to wider global markets. The lesson is that trusted collaborations, transparent supply chains, and diversified dependencies are indispensable in today’s uncertain global environment.
For India, resilience will demand structural reforms in energy sourcing, logistics management, and industrial policy. Companies must move beyond strategies built solely on cost efficiency and begin to fundamentally rethink their global dependencies. Without such recalibration, the next geopolitical shock will once again expose the fragility of India’s economic foundations, leaving its supply chains vulnerable to external forces far beyond its control.
Vaishali Basu Sharma
The author is a security and economic affairs analyst.
Opinions expressed in this article are those of the author and do not purport to reflect the opinions or views of THE WEEK.
