Geopolitical Spats: The Israel-Iran Conflict and Its Impact on Indian Businesses According to CRISIL Ratings
escalating tensions between Israel and Iran: potential impacts on rice, fuel, and airline costs for Indian businesses to consider
Hey there! Today, we're diving into the world of business and geopolitics as we explore the potential effects of the ongoing Israel-Iran conflict on various sectors within India. Let's get started!
Basmati Rice: A Potential Troublespot?
India exports a sizable amount of basmati rice to Iran, with both Iran and Israel accounting for nearly 14% of India's exports in the fiscal year 2025. While the demand for basmati rice might remain steady, a prolonged crisis could lead to payment delays from trading partners, thereby stretching working capital cycles. However, India's ability to expand exports to other regions, such as the Middle East, the US, and Europe, helps reduce the demand risk.
Fertiliser Sector: An Unexpected Impact?
Israel is a significant global producer of muriate of potash (MoP), a crucial fertiliser ingredient. Approximately 7% of India's MoP requirements are imported from Israel. While the MoP accounts for less than 10% of India's total fertiliser consumption, Greece serves as an alternative supplier, mitigating supply-side risks.
Diamond Jewellery: A Trading Hub in Focus
For the diamond industry, Israel acts as a significant trading hub. It accounted for 4% of India's cut and polished diamond exports in the last fiscal year. Although some impact may occur, Indian diamond exporters can divert trade through various hubs, such as Belgium and the UAE. The US and Europe remain the main buyers. One area of concern is crude volatility.
Crude Volatility: A Cause for Concern?
The current conflict has driven Brent crude oil prices up to $73-$76 per barrel in recent weeks, compared to the April-May average of $65 per barrel. Although prices are still below the FY2025 average of $78, any further escalation causing energy supply chain disruptions could escalate prices even higher, impacting India's profitability - particularly in sectors directly or indirectly related to crude oil.
The Aviation Sector: Three Big Worries for India's Largest Carrier, IndiGo
Fuel costs make up 35-40% of an airline's operational expenses, with airspace diversions leading to increased fuel usage. While strong travel demand may help balance the impact, any uptick in costs might significantly affect profitability. Analysts at Nomura estimate that for every $10 increase in oil prices, IndiGo's operating profit for the fiscal year 2026 could drop by nearly 17%.
Minimal Trade Exposure and Supply Chain Risks
India's trade exposure to Israel and Iran is relatively small, accounting for less than 1% of its total trade last fiscal year. This limited direct impact, but shipping route disruptions or increased insurance costs could impact export-focused sectors if the conflict persists.
Regional Test Amid Conflict: India's Trade Ambitions
Crisil stresses that the overall short-term impact on most Indian sectors remains minimal, while strong balance sheets and low capital expenditure requirements help companies cope with temporary shocks. However, extended conflict could lead to higher inflation levels due to elevated oil prices and supply chain disruptions.
Stay informed, and remember - the world of business and geopolitics is always intertwined! Until next time, keep learning!
- The ongoing conflict between Israel and Iran could potentially lead to payment delays in the trading sector within India, particularly for exports of basmati rice to Iran.
- In the fertiliser sector, while Israel provides about 7% of India's muriate of potash (MoP) requirements, the supply-side risks are mitigated by Greece as an alternative supplier.
- For the diamond industry, Israel's role as a trading hub could result in some impact, but Indian diamond exporters can potentially divert trade through other hubs like Belgium and the UAE.
- The surge in Brent crude oil prices due to the conflict has been a cause for concern, with prices currently averaging $73-$76 per barrel, as opposed to the April-May average of $65 per barrel.
- The aviation sector, specifically India's largest carrier IndiGo, faces three main concerns due to the conflict: increased fuel costs, airspace diversions leading to higher fuel usage, and potential drops in operating profit for the fiscal year 2026 due to increased oil prices.
- Despite the limited direct impact on trade, a prolonged conflict between Israel and Iran could lead to increased inflation levels given the surge in oil prices and supply chain disruptions.
- DEFI, personal-finance, lifestyle, technology, travel, and sports sectors have not been directly impacted by the Israel-Iran conflict, but they may be indirectly affected by rising inflation levels.
- Robust balance sheets and low capital expenditure requirements of Indian companies contribute to their ability to cope with temporary shocks from geopolitical tensions, encouraging a resilient business landscape.
