Near-term impact of Iran Israel conflict on most Indian firms is expected to be limited, says Crisil
The ongoing uncertainties in the Middle East has not had significant impact on India Inc's global trade, so far. However, if the situation deteriorates, some sectors such as basmati rice could see heightened impact and will require monitoring, while others like fertilisers and diamonds — both cut and polished — may also see some impact, said ratings agency Crisil.
"That said, the uncertainties have impacted global crude oil markets, with Brent hovering in the range of $73-76 per barrel (bbl) over the past one week — up from an average of ~$65 per bbl during April-May 2025. While this is still lower than the fiscal 2025 average of ~$78 per bbl, any escalation of tensions, say through disruption of energy supply chains, could result in a further spike in oil prices. If crude oil prices continue to be elevated over longer periods, it could impact India Inc's profits," said Crisil in a media release.
It added, "Also, prolonged and increasing uncertainties can result in a rise in air/sea freight cost and insurance premiums for export/import-based sectors, so will bear watching."
According to Crisil, India's direct trade with Israel and Iran is minuscule at less than 1% of the total trade involving India last fiscal. While India's major export to Iran is basmati rice, trade with Israel is more diversified, and includes fertilisers, diamonds and electrical equipment.
The data with Crisil shows that Iran and Israel accounted for about 14% to India's
basmati rice exports
in fiscal 2025.
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"But because basmati rice is a staple, the impact on demand because of the ongoing tensions is likely to be limited.
Additionally, India's ability to export to other countries in the Middle East, the US and Europe reduces demand risk.
But a prolonged crisis can lead to possible delays in payment from counterparties in these regions, elongating the working capital cycle," the release stated.
For domestic diamond polishers, Israel is mainly a trading hub, accounting for about 4% of the total diamond exports last fiscal. Additionally, about 2% of all rough diamonds imported are from Israel. "Polishers also have alternative trading hubs such as Belgium and the United Arab Emirates, with ultimate buyers based in the US and Europe, which will help them to manage any adverse impact on the sector," said Crisil.
As for the fertiliser sector, Israel is a major global producer of muriate of potash (MoP) and was one of the larger exporters to India last fiscal ( about 7% of India's MoP imports). "However, the share of MoP (as a final product or as an ingredient in other fertilisers) remains low at less than 10% of domestic fertiliser consumption. India's ability to source MoP from other countries also lowers the supply risk and will limit any material impact on the sector," the release said.
Crisil thinks that higher oil prices will benefit upstream oil companies because it translates to more revenue, while their costs are fixed. For downstream oil refiners, operating margins could get squeezed due to higher input cost as they may have limited ability to fully pass on the same through increase in retail fuel prices.
"For specialty chemical companies, about 30% of the operating cost is crude linked. Here, the ability to pass on steep rise in input cost would be limited as the sector is only just witnessing return to normalcy after seeing profitability pressures due to suppressed demand compounded by continued Chinese dumping and inventory correction by suppliers over the past two fiscals," said the ratings agency.
It added, "The paint sector could see some pressure on margin as about 30% of its production cost is linked to crude, where competitive intensity could limit the ability to pass on elevated input prices to customers and impact profitability to some extent."
For aviation companies, fuel accounts for about 35-40% of operating cost. "Further, the operators will also witness higher fuel cost due to increased travel time on account of airspace closures/diversions. Nonetheless, healthy demand sentiment is likely to provide some cushion to the margins," the release said.
About half of the tyre sector's operating cost is crude linked. "As for revenue, 60-65% accrues from the replacement market and the balance from original equipment manufacturers (OEMs). While the tyre makers can quickly pass on input price increases in the replacement market with relative ease, the pass-on normally happens with a lag for OEM sales which could impact margins in the interim," said Crisil.
"For flexible packaging and synthetic textile firms, while over 70-80% of production cost is crude linked, the impact of an increase in its price could be moderate due to the improved demand-supply scenario and firm's ability to pass on cost to customers, albeit with a slight lag," the release said.
According to Crisil, the near-term impact on most Indian firms is expected to be limited, with low capex intensity and balance sheet strength of companies offering cushion from potential vulnerabilities. "However, a prolonged escalation could aggravate the impact mainly due to rise in oil prices and disruption in supply chains which could stoke inflation," it cautioned.
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