The effective halt of shipping through the Strait of Hormuz, initially by Iran and the subsequent US naval blockade of Iranian ports, is hitting multiple sectors in India's economy, exposing the country's dependence on the critical trade and energy corridor. 

India has substantial trade ties with the Middle East, accounting for about 15% of India's exports and 20.1% of its imports from April to December 2025, according to Commerce Ministry data. A significant share of India's energy imports, exports and remittances still depends on the Strait of Hormuz.

"When it is disrupted, the impact cascades quickly, from higher fuel costs and inflation to weaker export earnings and pressure on household incomes," Lekha Chakraborty, senior economist at the National Institute of Public Finance and Policy, told DW.

Chakraborty explained that small and medium-sized enterprises (SMEs) in southern Kerala and Kandla in Gujarat are the most exposed. "Operating on margins of just 5% to 8%, they cannot absorb sharp spikes in freight, insurance and delays linked to the Strait of Hormuz. Many depend on informal credit that dries up when payments are delayed, while fixed-price contracts with a narrow set of Gulf buyers leave little room to adjust," said Chakraborty.

"The result is immediate cash flow stress, order cancellations, and layoffs," she said.

Spice traders, small exporters feel the squeeze

Exporters in India's spice hub, Kerala, say the disruption is already visible on the ground. The Middle East, especially the UAE, is central to India's spice trade, not just as a buyer but as a redistribution centre.

Gulshan John, managing director of Nedspice, a global player in the spice industry, told DW that the current crisis risks slowing demand, delaying orders, and creating payment uncertainties. "For exporters, that means business is not stopping, but becoming far less predictable," he said.

"The numbers point to a meaningful but not catastrophic hit. Against quarterly exports of about $1.2 billion (€1.1 billion), the spice industry could lose between $90 million (€83 million) and $180 million over three months," said John.

"The additional burden from freight, logistics and insurance alone could account for roughly $30 million to $60 million. The impact will fall unevenly, with small and medium exporters the most exposed as they lack the margins to absorb sudden shocks," he added.

There is no single official count, but industry estimates suggest that several hundred exporters in Kerala are already affected, particularly in and around Kochi city. 

Abraham Thomas, a Kerala-based agricultural exporter, said the disruption is already affecting shipments, with export consignments delayed and uncertainty building. 

"Containers are currently stranded at key transit hubs, including Khorfakkan Port in the United Arab Emirates and Sohar Port in Oman, holding up deliveries to Gulf markets," Thomas told DW.

Ships are taking longer routes, freight rates have surged, and marine insurance premiums have climbed due to war risk. In some cases, vessels are rerouting around the Cape of Good Hope — the southern tip of Africa. The result is delayed shipments and higher costs across the board. For exporters working on tight timelines, especially in perishables or contract-based trade, this can quickly translate into losses or broken deals.

Ceramics and textiles industry hit

The impact is already spreading across sectors. Rice exporters are facing difficulties in securing shipments, while industries dependent on imports such as fertilisers, tyres, paints, and chemicals are bracing for higher costs and potential supply constraints. 

Manufacturing clusters intextiles, ceramics, and construction materials, including limestone and sulphur, are also exposed to disruptions in both imports and exports.

"Freight rates have surged from about $300 to $8,000 to per container, wiping out margins for clusters like Morbi ceramics and Surat textiles. Because many firms depend on export receivables for working capital, delayed shipments quickly translate into a liquidity crunch as cash flows stall and credit lines tighten," Rushabh Shah, an investment banker from STIR Advisors, a boutique investment banking and advisory firm based in Ahmedabad, told DW.

Shah points out that the longer-term risk is loss of markets as buyers in the Gulf and Europe are already exploring alternatives in Vietnam, Turkey, and Bangladesh. "Once supply chains shift, Indian exporters may struggle to regain those relationships. In hubs like Morbi, kilns are beginning to go idle, not for lack of demand, but because exports are stuck and input supplies are uncertain," he added.

Is India's government doing enough for SMEs?

The government, for its part, has offered limited relief by easing export credit timelines, expanding insurance cover, and supporting some logistics to cushion small and medium exporters from rising freight and delays. However, for many small and medium exporters, current support is falling short.

"There are few tools to hedge freight costs, limited insurance cover, and no quick credit backstop. What begins as a logistics disruption risks becoming a deeper, longer-lasting setback without policy support," said Shah.

"The takeaway is structural. India's trade system remains vulnerable to shocks in one region. Without diversifying routes, markets, and energy sources, and building stronger financial buffers for smaller exporters, each crisis will expose the same fault lines," said Chakraborty.

Edited by: Kate Martyr