Trade Routes Hit as West Asia Conflict Worsens
The ongoing conflict in West Asia is significantly disrupting India's international trade and prompting a review of export strategies. Commerce Secretary Rajesh Agrawal highlighted the direct impact, stating, 'West Asia is also an important market. Around 12-13% of our exports go to the region.' This exposure, along with potential shifts in global value chains, means the impact extends beyond regional trade. Shipping lanes are also heavily affected, with freight rates reportedly jumping as much as 40% since April 1, 2026, due to higher fuel prices and war-risk premiums exceeding 1000%. Container shipping costs have risen, with surcharges now common on key routes. Data from Xeneta shows over 80% of the world's major ports are struggling, and Indian ports have seen a sharp drop in container movement speed. An estimated 40,000 to 45,000 Indian export containers are currently stranded or at risk, and a month of disruption could halt about $4 billion in monthly shipments.
Pharma Sector Under Acute Pressure
The pharmaceutical industry, a cornerstone of India's export economy, is facing particularly acute challenges. Price surges in essential raw materials like petrochemical-based active pharmaceutical ingredients (APIs), solvents, and intermediates have escalated by 30% to 100%, with some cases seeing hikes up to 200-300%. The cost of critical inputs such as isopropyl alcohol and naphtha have skyrocketed. This cost crunch is exacerbated by a weakening rupee, with India's currency nearing Rs. 94 against the US dollar, increasing the landed cost of imported materials. Industry experts estimate potential losses for pharma exports in March alone could range from Rs. 2,500 to Rs. 5,000 crore if the situation persists. Prolonged conflict could expose Indian drugmakers to losses of up to $750 million, with smaller and mid-sized companies facing heightened vulnerability due to limited financial buffers. The disruption to shipping at the Strait of Hormuz has hit global chemical production, validating supply concerns for critical inputs.
India Accelerates Diversification and Support for Exporters
This period of geopolitical stress is speeding up India's efforts to diversify export markets and strengthen supply chains. The government is working to reduce reliance on any single market by focusing on about 50 countries, including those in West Asia and Africa. Initiatives like the "Export Promotion Mission," announced in the Union Budget 2025-26 with ₹2,250 crore for export credit and cost management, aim to boost exporters' abilities. The focus is also shifting to products with higher value, along with specific support for sectors like pharmaceuticals, electronics, and energy. Additionally, the government has waived duties on certain petrochemical products to help stabilize supply and lower input costs for the pharmaceutical sector. The new ₹497-crore RELIEF scheme is designed to help exporters manage rising freight rates, insurance costs, and delays caused by the Middle East conflict.
Global Trade Outlook Worsens Amid Conflict
The current crisis brings to mind past disruptions, like those during the COVID-19 pandemic, which showed India's reliance on imported APIs and intermediates. Globally, the conflict highlights how vulnerable international trade routes can be. The World Trade Organization (WTO) predicts global merchandise trade volume growth will slow sharply to 1.9% in 2026, down from an estimated 4.6% in 2025, with the West Asia conflict identified as a key risk. The International Energy Agency (IEA) called the combined effects 'the greatest threat to global energy security in history.' This points to a global trend where investing in resilience is seen less as an expense and more as a growth driver, with 74% of business leaders making it a priority. The need to diversify energy sources and trade partners for long-term economic stability is clearer than ever.
Persistent Risks Cloud Export Outlook
Despite efforts to diversify, significant risks remain. High energy prices, directly caused by the conflict, could lead to widespread effects as higher costs pass through sectors, potentially increasing inflation. Continued weakening of the rupee against the dollar could increase import expenses and possibly discourage foreign investment, contributing to a larger fiscal deficit and pressure on interest rates. Remittances from the Gulf, a key source of foreign currency for India, might be affected if the situation continues, impacting jobs and incomes for millions of Indian workers there. The International Monetary Fund (IMF) warns that even a brief conflict could cause oil and gas prices to surge, while a long one could strain import-dependent countries, causing persistent uncertainty and geopolitical risk. The WTO also cautions that a prolonged conflict could permanently raise fuel and transport costs, disrupt major shipping and air routes, and significantly lower demand for tourism and global travel.
Navigating the Evolving Export Landscape
The West Asia conflict has clearly disrupted India's export path, but it is also a crucial turning point. Faster diversification, a stronger focus on supply chains, and renewed efforts in domestic production are key parts of India's plan to manage a more unpredictable global trade environment. While the government's initiatives and industry adjustments are handling immediate impacts, the long-term outlook depends on steady efforts to reduce dependencies and build a more robust Indian export sector. This geopolitical event requires an active, not just responsive, strategy as the global trade scene changes under ongoing external pressures.