Middle East crisis threatens Indian economy, says ORF report

Disruption at the Strait of Hormuz, a key maritime chokepoint for global oil, LNG, and fertiliser trade, is creating structural challenges for the Indian economy, according to a special report by the Observer Research Foundation (ORF). The report says the crisis has raised energy prices, freight costs, and war-risk insurance premiums, directly affecting India's import bill, inflation, public finances, and industrial competitiveness.

The impact is being felt across multiple sectors, including aviation, power, transport, petrochemicals, textiles, ceramics, metals, cement, and gems and jewellery. Micro, small and medium enterprises (MSMEs), lower-income households, and farmers are facing disproportionate strain, the report notes. Higher natural gas prices have also hit urea production and petrochemical derivatives, with wider effects on agriculture and manufacturing.

The report traces how the energy shock is transmitted from commodity sectors like oil and LNG to service sectors and households. It identifies specific vulnerabilities and examines policy levers to address exposure to the conflict. The report warns that continued instability could deepen the strain on India's macroeconomic stability and sectoral growth.