The near halt of shipping through the Strait of Hormuz — first caused by Iran and compounded by a subsequent US naval blockade of Iranian ports — is battering multiple parts of India’s economy and underlining the country’s dependence on this strategic trade and energy corridor.
Trade data from the Commerce Ministry show the Middle East accounted for roughly 15% of India’s exports and 20.1% of its imports between April and December 2025. A large share of India’s energy imports, export volumes and remittance flows transits the Hormuz route. When that artery is disrupted, effects ripple fast: fuel and transport costs rise, inflationary pressure builds, export revenues weaken and household incomes shrink, says Lekha Chakraborty, senior economist at the National Institute of Public Finance and Policy.
Small and medium enterprises (SMEs) are on the front line. Firms in southern Kerala and in Kandla, Gujarat, are especially exposed. Many operate on thin margins of 5% to 8% and cannot absorb sudden surges in freight, insurance and delay-related costs. They often depend on informal credit that dries up when payments are delayed, and some sell under fixed-price contracts to a narrow set of Gulf buyers, with little room to pass on higher costs. The immediate consequences are cash-flow stress, cancelled orders and layoffs.
The spice sector illustrates the scale of the pain. The Middle East, and the UAE in particular, is both a major buyer and a re-export hub for Indian spices. Gulshan John, managing director of Nedspice, says demand is slowing, orders are deferred and payments are uncertain. Quarterly spice exports run at about $1.2 billion; John estimates losses of $90 million to $180 million over three months, with freight, logistics and insurance adding roughly $30 million to $60 million in extra costs. Smaller exporters, with minimal margins and no buffers, are the worst affected.
Several hundred exporters around Kochi and in other Kerala hubs are reporting trouble. Agricultural shipments have been delayed or stranded at transit ports such as Khorfakkan in the UAE and Sohar in Oman. Vessels are often forced to reroute around the Cape of Good Hope, lengthening voyages, pushing up freight rates and inflating marine insurance premiums as war-risk assessments rise. For exporters of perishables or goods bound by tight contracts, such delays quickly translate into spoilage, penalties or cancelled deals.
The disruption is spreading through the supply chain. Rice exporters are struggling to move consignments, while industries that rely on imports — fertilisers, tyres, paints and chemicals — face rising input bills and constrained supplies. Manufacturing clusters in textiles, ceramics and construction materials (including limestone and sulphur) are vulnerable to interruptions on both the import and export sides. Reported container freight rates have jumped from roughly $300 to as much as $8,000 on some routes, a spike capable of erasing margins for clusters such as Morbi’s ceramics and Surat’s textiles. With export receivables commonly used as working capital, stalled shipments quickly throttle liquidity and strain credit lines.
There is also a risk of longer-term market loss. Buyers in the Gulf and Europe are looking at alternatives in Vietnam, Turkey and Bangladesh; once supply chains shift, Indian suppliers may find it difficult to regain footholds. In Morbi, for example, kilns are idling not for lack of demand but because exports are stuck and inputs are uncertain, says Rushabh Shah of STIR Advisors.
The government has offered some support — loosening export credit timelines, broadening insurance coverage and assisting with logistics to partially offset higher freight and delays. But these measures are limited. There are few instruments to hedge sudden freight spikes, war-risk insurance remains constrained and small firms lack a rapid credit backstop to cover acute cash-flow shocks. Without stronger, targeted support, a logistics disruption risks becoming a deeper, longer-lasting setback for many SMEs.
Policy experts say the crisis exposes structural weaknesses in India’s trade architecture. Greater diversification of routes, markets and energy suppliers, plus stronger financial buffers and hedging tools for smaller exporters, are needed to prevent future regional shocks from repeatedly exposing the same vulnerabilities.