The fragile ceasefire in West Asia may calm markets temporarily, but it should not lull policymakers into complacency. For India, the real risk is no longer just oil. It is supply chains.
Brent crude exceeding $100 per barrel is a visible stress. Less visible, but more dangerous, is the silent disruption of industrial inputs: speciality chemicals delayed, semiconductor materials rerouted, and shipping times extended by weeks as vessels avoid the Red Sea and Strait of Hormuz.
This is not a transient disruption. It is the latest signal that the global trading systems are being fundamentally rewired.
The question is no longer whether shocks will occur. It is whether India is structurally prepared for a world where they are constant.
Second-order shock to Indian industry
India’s vulnerability lies not in demand, but in supply. Around half of India’s crude oil imports transit through the Strait of Hormuz. Rerouting ships around the Cape of Good Hope has increased transit times by 10-15 days and raised freight costs by up to 30 per cent, as per UNCTAD data.
For industry, this translates into something more immediate: production risk. Several units, especially MSMEs, are facing production disruptions. Not because they lack orders.
But because a critical consignment of industrial gases, packaging materials, or semiconductor-grade silica is stuck in a vessel rerouted around the Cape of Good Hope.
This is the new normal. And India's industry cannot afford to treat it as a temporary disruption.
India’s fiscal strength: A strategic cushion
To its credit, the Centre has managed the immediate fiscal firefighting remarkably well. Foreign exchange reserves stand at $674.19 billion as of the week ending July 3, 2026, covering 10-11 months of imports.
The fiscal deficit target of 4.3 per cent of GDP for FY 2026-27 stands as one of the lowest among major global economies, reflecting a disciplined fiscal trajectory. This is not an accident; rather, it is the result of a decade of painful consolidation. That fiscal space now gives us a strategic advantage that Europe and several of our Asian peers do not possess.
We have the headroom to cut excise duties on fuel, to extend credit guarantees to stressed MSMEs, and to keep the capex cycle humming.
But fiscal strength is not a strategy. It is a buffer. The question before the Indian industry and policymakers is whether we will use this buffer to return to the old normal or to build a fundamentally new one.
The end of ‘just-in-time’ globalisation
The old normal was built on efficiency, minimal inventories, and the assumption that the seas were always open. That era ended not today, but in 2020. The COVID-19 pandemic taught us about the fragility of healthcare supply chains.
The Ukraine war taught us about the weaponisation of energy and food. The West Asia crisis is now teaching us the hardest lesson of all: the global commons, namely shipping lanes, undersea cables, digital infrastructure, are now active theatres of strategic competition.
For Indian industry, this demands a doctrinal shift from "just-in-time" to "just-in-case."
What ‘just-in-case’ means in practice
A shift from “just-in-time” to “just-in-case” does not imply protectionism or autarky. It means strategic redundancy. It means accepting that resilience has a cost, but disruption has a far greater one.
Three structural interventions are critical.
First, a national critical inventory framework. India already maintains strategic reserves for food and energy. It now needs the same approach for industrial inputs. We need to identify, industry by industry, the list of essential inputs that are both high-value and low-substitutability. For the pharma sector, it is specific APIs and fermentation media. For the auto sector, it is electronic control units and specialty steel. For the packaging industry, it is certain grades of polymers.
Government of India, in partnership with industry, must map these "critical nodes" and create a strategic buffer stock (e.g., 30-60 days of inventory). The cost of holding inventory is marginal compared to shutdown losses.
Second, multi-modal supply chain routing. The vulnerability is geographic as much as it is structural: Around 95 per cent of India’s merchandise trade by volume and 70 per cent by value is moved via maritime routes, concentrating the trade exposure heavily around volatile oceanic chokepoints.
The Suez Canal and the Strait of Hormuz will remain vulnerable. India must aggressively operationalise the International North-South Transport Corridor (INSTC) through Iran and Central Asia and expand maritime links with Southeast Asia and East Africa. This is not about replacing maritime trade, but de-risking it.
Third, a recalibration of trade agreements. FTAs today are designed for stability, not disruption. The West Asia crisis has exposed the cost of tariff and non-tariff barriers precisely when we need flexibility.
India’s ongoing negotiations with the EU and GCC should incorporate “supply chain continuity clauses”, which could include automatic tariff suspension on critical inputs during crises, fast-track customs clearance (within 48 hours) and pre-approved emergency logistics corridors, to name a few.
During COVID-19, India successfully created “air bubble” arrangements to sustain connectivity. A similar framework is now needed for goods.
The cost of inaction
The temptation will be to treat this crisis as cyclical. Oil prices will stabilise, shipping routes will reopen, costs will normalise. But that would be a strategic mistake. Geopolitical volatility is no longer episodic; it is structural. Without structural reform, MSMEs will face repeated supply shocks, manufacturing competitiveness will steadily erode, and our ambitious export target of $2 trillion by 2030 will be jeopardised.
India has passed the first test of the West Asia crisis: macroeconomic stability. The second will be far harder: rethinking efficiency, accepting higher short-term costs, and aligning government and industry around resilience. This is not crisis management; it is strategic transformation.
The West Asia crisis is a systems warning, not a one-off shock. India’s balance sheet has bought it time, but not immunity. The next phase of growth will hinge not on how cheaply India produces, but how reliably it can. In a world of recurring disruptions, resilience is competitiveness. And “just-in-case” is no longer a backup plan, but the core of India’s industrial strategy.
The author is Executive Director, Pahle India Foundation.
[With inputs from Kuntala Karkun, Senior Visiting Fellow, Pahle India Foundation]
The opinions expressed in this article are those of the author and do not purport to reflect the opinions or views of THE WEEK.
