Top Indian Industries Affected by the US-Iran War

The consequences of the recent conflict involving the US and Iran have reached far beyond their respective geographical borders. The event has caused significant disruptions in one of the world’s most critical shipping lanes - the Strait of Hormuz.

For India, this is more than just a distant headline about global affairs. The country is facing tangible on-the-ground impacts of the war, as it is heavily reliant on imports to meet its energy and industrial needs. The affected shipping route has created a ripple effect, impacting several key sectors of the Indian economy.

Let’s understand which industries are feeling the most pressure and what this means for businesses and consumers across the country.

The Strait of Hormuz: India’s Vital Supply Line
 

To understand the impact of the affair, we first need to comprehend the importance of the Strait of Hormuz. This strategic chokepoint is the gateway for a massive volume of goods entering and travelling through the Gulf region. 

When it comes to Indian imports, the numbers are significant. For instance, about half of the country’s crude oil and LNG imports pass through the Strait of Hormuz. This number is even higher for LPG imports, where about 80% come from the affected route. 

With this strait effectively congested due to the conflict, the flow of essential commodities has slowed, leading to supply chain challenges across several Indian industries.

Restaurants and Hospitality: The Immediate LPG Crunch

The most immediate and widely felt impact in India has been on the hospitality sector. Restaurants, cafes, and other eateries rely heavily on a steady supply of commercial LPG cylinders for their daily operations. 

With a good chunk of India’s LPG imports coming from the Gulf countries and the Strait of Hormuz, the hospitality industry was the first to feel the strain.

Many restaurant owners reported difficulties in securing their usual quota of cylinders and running their business. Many operated with a minimal buffer stock, making them highly vulnerable to supply disruptions. The consequences included:

●    Operational Challenges: Kitchens struggled to be up and running, with some owners considering trimming or altering their menus to fit with the new electric, coal-based, or other cooking methods.
●    Price Hikes: Several cities like Bengaluru, Mumbai, and Delhi faced price spikes where dealers are charged a premium for the scarce commercial cylinders. The critical shortage even gave rise to black markets in some parts of India. 
●    Risk of Temporary Shutdowns: Industry associations warned that if the shortage persisted, many smaller establishments might be forced to temporarily shut their doors. This actually came true for some restaurant owners who momentarily paused their operations in the aftermath. 

While the government has taken steps to manage household and commercial LPG supplies, there is considerable pressure on business owners in this sector, who operate on slim margins.

Also Read: Understanding the Impact of LPG Shortage in India

The Fertiliser Industry: A Challenge for Agriculture

Natural gas is the primary raw material, or ‘feedstock’, for producing various fertilisers. India’s fertiliser sector, which relies heavily on imported LNG, has been directly affected by the supply squeeze. Several major manufacturers have already announced production cuts due to tighter availability.

This is particularly concerning since it is ahead of the monsoon, when farmers prepare for planting. A prolonged disruption could lead to extended fertiliser shortages and higher input costs for farmers, potentially impacting the agricultural sector’s output and profitability, too.

The Chemical Sector: A Supply Chain Domino Effect

The disruption in the supply goes beyond energy and has affected other key industrial chemicals, too. For example, ammonia, a pungent gas essential for many chemical processes, and India is a leading importer of ammonia, with most of it sourced from countries in the Gulf region. 

The shortage of natural gas, used to produce ammonia, and direct disruptions to ammonia shipments forced chemical manufacturers to take drastic steps. Some businesses even temporarily suspended the manufacturing of amines, compounds crucial for various downstream industries.

This shortage could also impact sectors that rely on these amine-based chemicals, including pharmaceuticals, agrochemicals, and personal care products. The interconnected nature of modern supply chains is advantageous in many ways, until a disruption occurs in one area. In this case, the shortage of one key raw material led to a halt in production in seemingly unrelated industries.

Also Read: How the Middle-East War is Impacting the Indian Economy

Ceramics and Tiles: Facing a Potential Shutdown

The ceramics industry, with its major hub in Morbi, Gujarat, is another sector feeling the heat. This industry is heavily dependent on natural gas and propane for its manufacturing processes.

With propane supplies shrinking and natural gas deliveries curtailed, the industry is facing a difficult choice. The ceramic association in Morbi indicated that a prolonged shutdown might follow in the coming weeks if the supply situation does not improve. Such a halt would not only impact production and revenue but also have significant consequences for the large workforce employed by this sector.

To Conclude

The impact of the US-Iran conflict serves as a powerful reminder of how global geopolitics can directly influence the local economy. It highlights the need for strategic reserves, alternative energy roadmaps, diversified supply chains, and contingency plans. 

Understanding these economic shifts and dynamics can be the first step towards navigating them effectively. It can help better prepare for challenges and build a more resilient financial future, whether for business planning or personal expenses.

Frequently Asked Questions 

Why is the Strait of Hormuz so critical for India’s energy imports?
The Strait of Hormuz is a vital route for about half of India’s crude oil and LNG, and about 80% of LPG imports. So, a disruption in the supply chain directly affects energy supplies and raises costs for households and businesses.

How is the hospitality sector affected by the LPG shortage?
Restaurants and eateries are facing acute commercial LPG shortages, leading to operational halts, menu changes, and switching to alternative cooking methods. The shortage has even led to temporary shutdowns for some smaller outlets running on thin margins

What challenges are Indian farmers facing due to this conflict?
The fertiliser industry, reliant on imported LNG as feedstock, has cut production ahead of the monsoon, risking shortages and higher overall costs for farmers, which could lower agricultural output and food security.

Which other industries are hit by supply chain disruptions?
Sectors such as chemicals, ceramics, and other energy- and fuel-dependent manufacturing businesses are under pressure from curtailed Gulf imports.