Iran war batters India: Factories go dark, basmati rice piles up at ports as Hormuz crisis deepens

The tremors of war in Iran have reached deep into the Indian economy, halting factory floors, stranding the country’s prized basmati rice exports, forcing airlines to cancel hundreds of flights, and driving restaurants to temporarily shutter. Businesses across the subcontinent are now grappling with fractured shipping lanes and surging fuel costs that show no sign of abating.

Now in its thirteenth day, the conflict has all but paralysed maritime traffic through the critical Strait of Hormuz, sending freight costs sharply higher. Of all Asian economies exposed to a prolonged conflict and shipping blockade, India stands among the most vulnerable. Roughly 50% of the country’s crude oil imports transit the strait, and according to data from Kpler, fully 89% of India’s liquefied petroleum gas (LPG) supply passed through that chokepoint in 2025.

Late Monday, New Delhi activated emergency measures to guarantee that households and vehicles running on compressed natural gas (CNG) receive first priority access to whatever domestic gas supplies remain.

“The problem is no longer just price — we are now confronting a supply crisis,” Madhavi Arora, Chief Economist at Emkay Global, told Nikkei Asia.

Ceramic factories on the brink

The gas shortage threatens to bring the ceramic industry in Gujarat — the home state of Prime Minister Narendra Modi — to a standstill. India concentrates roughly 90% of its ceramic production in the city of Morbi. Of approximately 700 factories there, between 400 and 450 rely on propane to fire their kilns. Manoj Arvadiya, President of the Morbi Ceramic Association, said that close to 100 of those facilities have already closed.

“If propane supplies are not restored within 10 days, all of our factories could be facing shutdown,” Arvadiya warned.

The gas crunch has also forced temporary closures of restaurants in major cities, with hospitality industry bodies sounding the alarm.

Vijay Shetty, President of the Hotel and Restaurant Association of India, said roughly 20% of restaurants and hotels in Mumbai have temporarily shut their doors, warning that the figure could climb to 50% within days if the LPG supply crisis persists. “There is acute distress across [the state of] Maharashtra,” Shetty said.

Social media has been flooded with accounts of restaurants rationing fuel, cutting operating hours, and switching to induction cooktops, resulting in sharply reduced menus. The National Restaurant Association of India estimates that even a single day’s supply disruption costs the sector up to 13 billion rupees ($141 million).

Textiles and manufacturing squeezed

Textile manufacturers have not been spared. Ashwin Chandran, Chairman of the Confederation of Indian Textile Industry, said freight costs for shipments to Europe have surged approximately 40%, jumping from roughly $2,200–$2,300 per container to more than $3,000.

Chandran also flagged a 30% increase in polyester prices tied to the sharp spike in crude oil. “Polyester usage has been significantly impacted because it may not be possible to pass on the price increase under short-term existing contracts,” he said.

Brent crude has whipsawed violently over the past three trading sessions: it surged to nearly $120 per barrel on Monday, retreated to approximately $83.50 on Tuesday, then clawed back toward $100 on Thursday as the Trump administration sent contradictory signals about the trajectory of the war. Prices remain more than 66% higher year-to-date.

A recent note from ICICI warned that sectors relying on petroleum derivatives — among them paints and tyres — face mounting margin compression as prices stay elevated.

Exports snarled, rice stranded

The conflict is also choking export markets. According to a report by investment advisory firm ICRA, approximately 14% of India’s total exports are destined for West Asia — a degree of exposure significantly higher than that of ASEAN nations, where West Asia accounts for roughly 5% to 10% of total exports, according to Emkay Global’s Arora.

Among India’s largest export categories, basmati rice has been particularly hard hit. Satish Goel, President of the All India Rice Exporters Association, said India ships 6 million metric tons of rice annually, with approximately 75% bound for Gulf states. Goel estimated that around 400,000 tons of rice — worth roughly $1,000 per ton — is currently stranded at sea or piling up at Indian ports.

Airlines ground flights as fuel costs bite

The closure of airspace over Iran and surrounding conflict zones has forced hundreds of flights onto longer re-routing, driving up fuel burn, according to ICRA. Its report noted that, as of March 5, Indian carriers had cancelled more than 1,700 flights — equivalent to approximately 46% of their international operations.

Air India announced Tuesday that it would impose fuel surcharges on both domestic and international routes in response to a “sharp rise” in jet fuel costs, cautioning that without such surcharges, certain flights would be economically unviable and subject to cancellation.

Markets on edge at a sensitive moment

The cascading effects of the war have arrived at a delicate juncture for Indian financial markets. Foreign investors have been net sellers of Indian equities to the tune of more than 830 billion rupees this year, unnerved first by uncertainty surrounding a US-India trade deal and now by the ongoing conflict. Threats of AI-driven disruption have weighed on technology shares, and despite a correction of more than 8% in the benchmark Nifty 50 this year, large-cap stocks continue to trade at relatively elevated valuations — a point flagged in recent notes by both Nomura and Morgan Stanley.

Following the eruption of the energy and shipping crisis, Morgan Stanley downgraded India from overweight to equal-weight, citing these compounding risks alongside the country’s historically adverse sensitivity to oil price shocks.