The effective halt of shipping through the Strait of Hormuz — first by Iran and later compounded by a US naval blockade of Iranian ports — is hitting multiple sectors of India’s economy and exposing the country’s dependence on this critical trade and energy corridor.
India has substantial ties with the Middle East, which accounted for about 15% of its exports and 20.1% of its imports from April to December 2025, according to Commerce Ministry data. A significant share of India’s energy imports, exports and remittances moves through the Hormuz corridor. When that route is disrupted, impacts cascade quickly: fuel costs and inflation rise, export earnings weaken and household incomes come under pressure, says Lekha Chakraborty, senior economist at the National Institute of Public Finance and Policy.
SMEs in southern Kerala and Kandla in Gujarat are among the most exposed. Operating on margins of just 5% to 8%, many cannot absorb sharp spikes in freight, insurance costs and delays linked to the Strait. They often rely on informal credit that dries up when payments are delayed, and some work under fixed-price contracts with a narrow set of Gulf buyers, leaving little room to adjust. The immediate fallout is cash-flow stress, order cancellations and layoffs.
Spice traders and small exporters are already feeling the squeeze. The Middle East — especially the UAE — is central both as a buyer and a redistribution hub for India’s spice trade. Gulshan John, managing director of Nedspice, says the crisis is slowing demand, delaying orders and creating payment uncertainty. Quarterly exports from the spice industry run at about $1.2 billion; John estimates losses could reach $90 million to $180 million over three months. Freight, logistics and insurance alone could add roughly $30 million to $60 million in burden. Small and medium exporters, lacking margins and buffers, are most exposed.
Industry counts vary, but several hundred exporters in Kerala — particularly around Kochi — are already affected. Agricultural exporters report shipments delayed and consignments stranded at transit hubs such as Khorfakkan in the UAE and Sohar in Oman. Ships are taking longer routes, freight rates have surged, and marine insurance premiums have risen with war-risk assessments. In some instances vessels are rerouting around the Cape of Good Hope, adding time and cost. For exporters dealing in perishables or on tight contract timelines, delays can quickly mean losses or broken deals.
The disruption is spreading across sectors. Rice exporters face shipment difficulties while industries reliant on imports — fertilisers, tyres, paints and chemicals — brace for higher costs and constrained supply. Manufacturing clusters in textiles, ceramics and construction materials (including limestone and sulphur) are exposed to interruptions in both imports and exports. Freight rates have reportedly jumped from about $300 to as high as $8,000 per container in some routes, a spike that can wipe out margins for clusters like Morbi’s ceramics and Surat’s textiles. Many firms use export receivables as working capital; when shipments are delayed, receivables stall, liquidity tightens and credit lines are strained.
There is also a longer-term risk of losing markets. Buyers in the Gulf and Europe are exploring alternatives in Vietnam, Turkey and Bangladesh. Once supply chains shift, Indian exporters may struggle to win back those relationships. In Morbi, kilns are beginning to idle — not due to lack of demand, but because exports are stuck and input supplies are uncertain, says Rushabh Shah, an investment banker at STIR Advisors.
The government has offered limited relief: easing export credit timelines, expanding insurance cover and supporting some logistics to cushion exporters from rising freight and delays. But for many small and medium firms the measures fall short. There are few tools to hedge freight costs, limited insurance cover for war-risk exposures, and no quick credit backstop for firms facing sudden cash-flow shocks. Without stronger policy support, what begins as a logistics disruption risks becoming a deeper, longer-lasting setback.
Experts say the crisis highlights structural vulnerabilities in India’s trade system. Until routes, markets and energy sources are diversified and stronger financial buffers are built for smaller exporters, each regional shock will expose the same fault lines.
Edited by: Kate Martyr