Severely singed by Iran’s missiles across West Asia, India may have to go for drastic changes in the Union Budget by the monsoon session as prices soar, gas crisis derails households and businesses, FPI outflows near a record, and the rupee has a mighty fall.
The cost of shipping has gone up by 300 to 400%. Iran’s targeting of Gulf states has sharpened Delhi’s concerns. India’s equities in the Arab world – diaspora, remittances, energy, trade and institutional ties – are far deeper. India has been vocal about the “damage and destruction” there. The blasting of Qatar gas facilities impacts India critically. So does the US-Israel attack on Iran’s crucial petroleum island Kharg and preparations for Marine assaults. European nations like Germany, Norway and others are withdrawing their support for the war. US President Donald Trump has lambasted the UK for not obeying his orders. The retreat of US ships Abraham Lincoln and Gerald Ford has added to the criticality. Iran’s missiles are hitting critical US establishments, hurting its companies like Exxon and others.
India is likely to call for a revision of the Rs 5-lakh crore budget allocations as financial and economic dynamics change despite India safely keeping off the shadow of the war. A redraw through a supplementary budget in the monsoon session could be more than a reality. Sectors like energy and defence may gain, while aviation, paints, and oil marketing companies face pressure.
The government might resort to more borrowing as it also tightens its belt for development and welfare allocations. The present borrowings are of about Rs 17 lakh crore. Interest rates for commercial borrowing are also rising, making repayments expensive. The government has, meanwhile, announced a Rs 1000-crore war chest to meet the rising shipping and insurance expenses across the world. The impact is still uncharted.
The present Union Budget is to be formally passed by Parliament in a few days. Imports have been falling during the last two years. The customs duty collections witnessed a notable decline, dropping approximately 7% year-on-year between April and November 2025 to around Rs 1,429 billion compared to the same period in 2024.
The war is likely to impact imports of edible oil, fertiliser, pulses, gas, pharma raw materials and other products. The higher premium for shipping insurance has jolted traders. India’s economic links with West Asia run deep: the region accounts for 17% of India’s exports, supplies 55% of its crude oil and generates 38% of its remittances, according to Jefferies, a brokerage firm. The fallout for India could show up in four places: energy, remittances, its Gulf diaspora and the loss of strategic Iranian port, Chabahar.
Gulf tensions have triggered a shipping crisis, with major carriers imposing war surcharges of up to $3,000 per container—even on cargo already at sea—causing a 300 400% spike in freight costs. Indian exporters, especially small firms, are hardest hit as flat charges often exceed cargo value. Shipments remain stranded at Gulf ports, with no legal or regulatory relief due to force majeure protections and insurance gaps. Perishables risk spoilage, threatening farm prices, while payment delays could spark RBI compliance issues and working capital stress.
Despite rhetoric on India-Iran ties, relations have long been constrained by Iran’s global isolation, pushing India to deepen engagement with key Gulf states—making regional instability a far greater concern for Delhi. Prime Minister Narendra Modi’s reluctance to criticise Israel during his recent visit, just days before the strikes, risks eroding India’s perceived neutrality, something Iran is unlikely to overlook.
The coming days may have more trouble and increased financial rigours for India, including further job and production losses. It’s a difficult situation, and the country has to chart out a new course during such turbulence.
