India Inc. stays resilient amid Middle East turmoil, but Crisil warns of profit hit if crisis deepens

With Israel and Iran's direct trade with India standing at a minuscule less than 1% of the total trade in the last fiscal year, the ongoing uncertainties in the Middle East have not had a significant impact on India Inc’s global trade, says a recent Crisil Ratings report.

“All said, the near-term impact on most Indian firms is expected to be limited, with low capex intensity and the balance sheet strength of companies offering a cushion from potential vulnerabilities,” the report stated.

Even though India’s overall trade exposure to Iran and Israel is limited, select sectors such as basmati rice, fertilisers, and diamonds could come under moderate pressure if tensions in the Middle East persist. Crisil Ratings cautions that a prolonged escalation could aggravate risks through rising oil prices and disruptions in supply chains, potentially stoking inflation.

Which sectors will be most affected?

Basmati rice exports to the two countries accounted for about 14% in FY25, but the staple nature of the product and India’s access to alternative markets reduce demand-side concerns. The report still said that payment delays from conflict-hit regions could stretch working capital cycles for exporters.

In the fertiliser segment, Israel supplied 7% of India’s muriate of potash (MoP) imports last year, but this forms a small portion of overall domestic consumption. Availability from other global suppliers limits any immediate supply risk. In the diamond trade, Israel’s role as a hub rather than a key source, with only 4% of polished exports and 2% of rough imports passing through, means Indian polishers can pivot to other centres like Belgium or the UAE without major disruption.

The ripple effects of sustained oil price increases will differ across industries, depending on their crude dependence and pricing flexibility. While upstream oil companies may benefit from higher prices, refiners could see margins tighten. Specialty chemical and paint makers, with around 30% crude-linked input costs, may struggle to pass on hikes due to weak demand. Airlines, already dealing with fuel costs that make up 35–40% of their expenses, also face route diversions that add to costs, though strong demand could soften the blow. Tyre makers and firms in flexible packaging and synthetic textiles, though exposed to high crude-linked costs, may be better placed to pass these on, particularly in replacement or consumer-facing segments. Prolonged tensions may also raise freight costs and insurance premiums, posing additional challenges for trade-dependent sectors.

While the report noted that the current impact of Middle East tensions on India Inc’s global trade remains limited, the rating agency said it is closely monitoring the situation and will assess credit implications if the conflict worsens. The ongoing uncertainty has already pushed Brent crude prices up to $73–76 per barrel, and any further escalation could drive them higher, impacting corporate margins.