Just as global shipping companies and traders were beginning to recover from months of high freight costs, a renewed conflict between Iran and Israel has reignited fears of another wave of disruptions. The return of container vessels to the Red Sea route — a crucial maritime corridor — is now at risk, forcing many back to the longer, costlier Cape of Good Hope passage.
Escalating Conflict and Its Global Ripples
Tensions flared after Israeli airstrikes reportedly killed at least three senior Iranian military officials, including Hossein Salami, head of Iran’s elite Revolutionary Guard. In retaliation, Iran launched nearly 100 drones toward Israel on June 13, many of which were intercepted, according to Israeli authorities. Israeli Prime Minister Benjamin Netanyahu has stated that strikes on Iranian military and nuclear facilities will continue “for as many days as it takes.”
Iran’s response, calling the attack a “declaration of war,” has sent shockwaves through global stock markets. India’s Sensex dropped 573 points on Friday, reflecting investor concerns over a wider regional conflict and its economic consequences.
Threat to Global Oil Supply and Energy Routes
One of the most immediate concerns is the potential closure of the Strait of Hormuz — a vital shipping lane through which 20–25% of the world’s oil passes, along with large volumes of LNG from Qatar and the UAE. Any disruption here could significantly impact global oil supply, with direct consequences for India, which imports the majority of its crude oil.
Qatar, a major LNG supplier to India, could also be affected. S&P Global notes that while energy infrastructure has not yet been directly targeted, Israel has temporarily shut its Leviathan gas field as a precaution, and Iran reported no immediate damage to its refineries or depots.
Inflation and Economic Risks for India
The conflict threatens to reverse the recent easing of inflation in India. In May 2025, India’s retail inflation had dropped to a 75-month low of 2.82%, driven by falling prices of fruits, pulses, and cereals. This prompted the Reserve Bank of India (RBI) to cut the repo rate by a significant 50 basis points. However, the RBI warned that further monetary support for growth may be limited if global oil prices surge again.
India’s vulnerability lies in its heavy reliance on oil imports. Since 2019, India halted oil imports from Iran due to US sanctions, but the broader West Asian supply chain remains critical. According to Goldman Sachs, if Iranian oil exports drop by 1.75 million barrels per day for six months, and even if OPEC+ offsets half the loss, Brent crude could rise above $90 per barrel in the short term before settling in the $60s by 2026.
Impact on Shipping, Freight Rates, and Trade Logistics
Shipping lines, including Indian exporters, had started to breathe easier in May as Red Sea conditions improved and freight rates began to normalize. The Federation of Indian Export Organisations (FIEO) had expressed cautious optimism about a return to pre-crisis shipping routes. However, with Iran and Israel entering direct confrontation, the risk of prolonged disruption is now a harsh reality.
If the Cape of Good Hope route becomes the new norm again, freight rates are likely to climb further. This longer route increases voyage times by 10–14 days, reducing vessel availability and pushing up shipping costs — a major concern for Indian exporters across sectors.
LNG Flow Disruption and Insurance Costs Surge
The crisis has already slashed LNG shipments through the Suez Canal. According to Kpler data, volumes dropped to 4.15 million tonnes in 2024, a sharp decline from 32.36 million tonnes in 2023 and 34.94 million tonnes in 2022. In contrast, LNG volumes via the Cape of Good Hope skyrocketed from 11.76 million tonnes in 2022 to 59.37 million tonnes in 2024, underscoring how trade is being rerouted at considerable cost.
Additionally, rising insurance premiums for vessels passing through conflict zones are compounding cost pressures for global and Indian shipping businesses.
Conclusion: A Growing Storm for Global Trade and India’s Economy
The renewed Iran–Israel conflict is more than a geopolitical standoff — it’s a major disruption to global trade flows, with India sitting in the crosshairs due to its dependence on energy imports and vulnerable shipping logistics. While the full extent of the impact will depend on how long the conflict lasts and whether critical energy routes remain open, the economic and inflationary risks for India are mounting rapidly.
Unless tensions ease soon, businesses and policymakers in India will need to brace for a renewed period of uncertainty in oil prices, trade costs, and supply chain disruptions.
Reference
Israel Launches ‘Rising Lion’ Operation, Strikes Iranian Nuclear Sites
Stay updated with all the latest news and insights – News Of US
