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On June 19 talks aimed at reaching a peace settlement between the United States and Iran began. The conflict in the Middle East continues to affect the Global Economy. At the same time India’s position has received remarkably little attention in the mainstream discourse. This seems to be striking given that India, the biggest economy in the region, has been among the largest victims: passage permits through the Strait of Hormuz were no guarantee of safety for Indian vessels^[i]. An Indian national was killed in drone strike on the MV MKD Vyom tanker within the first days of the war, and three more sailors lost their lives when US forces recently struck civilian ships^[ii].

In response, the Indian Ministry of External Affairs condemned^[iii] the use of lethal force undermining the safety and stability of international maritime shipping, and summed the US charge d’ affairs twice, registering New Delhi’s protest against these transgressions. For India the consequences, however, extend far beyond these direct losses. The conflict had impacts on the country’s economic security and its relationship with major powers.

The costs of the Iran War

The instability in the Gulf stands against India’s energy security interests, given that since March this year, the transit of vessels via the Strait of Hormuz have fallen by 90%^[iv]. Asian states have faced the brunt of disruption. As for the India, importing 88% of its crude oil, the Iran crisis has had severe impacts on the economy^[v]. Despite the government’s intervention in stabilising the retail price of crude, the price of oil on average increased by Rupees 7 to 8 per litre since the crisis began^[vi]. The hike in prices and the shortage of Liquified Natural Gas saw households and businesses being impacted by the limited availability of gas for cooking. While the impacts were felt, the protests were not widespread and reported in some pockets across the country.

The inflation in the fuel and power sector surging has had negative multiplier effects. The closure of the strait further created supply disruptions particularly in the case of Liquified Natural Gas and Aviation Turbine fuel. With the demand for imports increasing, the rupee began to weaken. Since February 28, the rupee has weakened by 4.5% against the dollar. In the milieu, and the rising geopolitical volatility in the Middle East, foreign investors began scaling down their investments resulting in short term impacts on the Indian stock market, and the Indian Reserve Bank of India lowered the Indian economy’s growth forecast from 6.9% to 6.6%, with inflation climbing to 5.1%^[vii].

Beyond domestic economic instability, India’s foreign strategic initiatives have also come under threat. The great example is Chabahar – the first case of taking state-level management of foreign port. According to the state budget, India has invested $78 mln in the development of local infrastructure^[viii], while in 2024 the company Indian Ports Global Limited signed a 10-year management contract, which implies commitment to additional investments.

Regarded as a strategic asset, the port benefitted from the exemption under US sanctions. However, with the outbreak of the war, the terms for Indian operations there were revised: by April India was compelled to settle all financial obligations with Iran and suspend its operations, although it retained the right to return. The current uncertainties have further dampened the appetite of Indian private capital for investments. Taken together, these developments may undermine India’s efforts to secure access to Afghanistan and Central Asia, also looking for investments in local infrastructure^[ix].

The intervention from the government 

New Delhi’s position to the crisis has been pragmatic, and measured, calling for the cessation of hostilities and restoration of diplomacy and dialogue. The Middle East stands as an important geography for India, in recent years, the conducive ties it shares with all Gulf partners, further materialised. In this context, India’s position has been neutral given its longstanding relationships both with Iran and Gulf Cooperation Countries. 

With the Global demand for oil outweighing supply, the US treasury introduced temporary waivers on the purchase of oil from Russia and Iran. This resulted in an uptick in the purchase of Russian crude from 1.1 million barrels per day in February, to averaging between 2 – 2.2 million bpd since March^[x]. Further, for the first time in seven years, India purchased oil from Iran. The government of India continued to reiterate that market considerations influenced India’s oil purchases than unilateral sanctions, which New Delhi does not recognise. In May, as a result of the geoeconomic shocks, the government called for austerity measures, incentivising a shift in consumption patterns such as reducing imports and purchasing gold^[xi]. The Reserve Bank of India, introduced temporary regulatory measures to stall the speculation of the rupee, capping the net-open rupee positions of Indian banks to $100 million^[xii]. These legislations have reduced the shorting of the currency. The crisis exposed India's vulnerabilities to supply shocks and its growing dependence on hydrocarbon imports.

For a fast growing economy such as India, the prerogative of strengthening its energy security has received considerable impetus. Since the last decade, the oil sector underwent reforms, India’s capacity in the storage of oil improved considerably. In June, Hardeep Singh Puri, the Indian Minister for Petroleum and Natural Gas cited that India did not face an energy crisis, as India has oil reserves of upto 60 days and LPG reserves upto 75-80 days^[xiii]. Additionally, since the crisis began, New Delhi scaled up the imports of oil from countries such as Brazil, Venezuela, and Nigeria.

What do these developments mean for the India-Russia relationship

The conflict in Iran has sparked wide-ranging debates about the priorities of Indian foreign policy. Despite the current official restraint, public reaction has been more critical. India witnessed a steady downfall of the relations with the US during the Trump administration, caused by pressure to curtail oil imports from Russia, imposition of tariffs, and refusal to make concessions on Chabahar.

Against this backdrop, it comes no surprise that, whatever form a potential agreement may take, the Indian side is inclined to view as strategic victory for Tehran – or more precisely, as a defeat for the current US administration^[xiv]. At the same time, the conflict is viewed as a chance to cause the strengthening the China’s role and tangible boost in Pakistan political standing^[xv].

Interestingly, Moscow’s positions vis-a-vis the crisis in the Gulf has not differed vastly in comparison to New Delhi, signaling a convergence of both countries on the question of maritime security in the Western Indian Ocean.  Like India, the GCC is an important economic partner for Moscow. Both sides share cordial ties with Tehran, although Russia’s positions differ given the prominence of Tehran in its calculus in recent years, reflected in the conclusion of the comprehensive strategic partnership between the two countries in 2024. However, the strategic stability of the region is of considerable prominence for both New Delhi and Moscow given that the longer hostilities persist in the Persian Gulf, the seamless operationalisation of the International North South Transport Corridor remains impacted.

Second, this crisis further creates further impetus for cooperation in the energy dimension, dispelling the notion of Indian imports of Russian oil being a temporary development, promulgated by the Ukraine crisis. Since the end of 2022, the aggregate purchase of Russian oil has exceeded 1.5-1.7 million barrels per day. Energy has become the mainstay of the bilateral partnership, with Rosneft investing more than $25 billion in the Indian economy[xvi]. The current crisis reflects further appetite for the increased purchase of Russian energy in India’s energy basket, which in other words translates to unilateral methods of coercion reflected in sanctions and secondary tariffs will not necessarily have a significant impact on the energy partnership.

Ivan Shchedrov is a Junior Research Fellow with the Primakov Institute of World Economy and international Relations, Moscow

Rajoli Siddharth Jayaprakash is a Junior Fellow with the Observer Research Foundation and a Visiting Fellow with the Primakov Institute of World Economy and international Relations, Moscow