Impact of Global Conflicts on India's Supply Chain

When Wars Reshape Trade Routes: The Full Impact of Global Conflicts on India’s Supply Chain

Published: March 2026 | Reading Time: ~8 minutes | Topics: Supply Chain, Geopolitics, India Trade

In a world where conflicts erupt with little warning — from the Russia-Ukraine war to Middle East tensions and escalating US-China trade friction — India’s supply chains stand at a critical crossroads. As one of the world’s fastest-growing major economies, India is both deeply embedded in global trade flows and acutely vulnerable to the shocks that wars and geopolitical crises unleash. Understanding how wars impact India’s supply chain is no longer an academic exercise — it is a boardroom imperative.

Key Impact Figures at a Glance

$30Bn+ India’s export risk estimated FY24 export loss from Red Sea crisis

8x Freight cost surge Kolkata–Rotterdam rates at crisis peak

21–28 days Shipping delay extra transit time via Cape of Good Hope

~80% Trade route reliance of India’s EU exports via Red Sea

The Red Sea Crisis: India’s Most Immediate Supply Chain Threat

Of all the active conflicts reverberating through global trade, the Red Sea crisis — triggered by Houthi missile and drone attacks on commercial vessels since late 2023 — has dealt the most direct blow to India’s supply chain. The Red Sea and Suez Canal corridor, which handles approximately 12% of global shipping traffic, is the primary trade artery connecting India to Europe, North America, North Africa, and the Middle East.

India is particularly exposed. Roughly 80% of its exports to Europe pass through this corridor, and these regions collectively account for about 50% of India’s total merchandise exports. When Houthi attacks forced major shipping lines to reroute around the Cape of Good Hope, the consequences were immediate and severe.

“Indian companies are experiencing downstream effects — from shipment delays to constraints in key energy inputs, as well as emerging shortages in essential raw materials and intermediates across several sectors that rely heavily on timely cross-border flows.” — Confederation of Indian Industry (CII), 2026

Freight rates from Kolkata to Rotterdam, for example, skyrocketed from around USD 500 to USD 4,000 at the height of the disruption. Shipping delays of 21 to 28 additional days became the norm. India’s overall merchandise exports contracted by 9.3% in August 2024, with petroleum product exports alone falling by over 37% year-on-year — a direct consequence of logistical bottlenecks along rerouted shipping lanes.

Sector-by-Sector: Who Bears the Heaviest Burden?

The impact of war-driven supply chain disruption is not uniform across India’s economy. Some sectors face existential pressure while others navigate with greater resilience.

Textiles and Apparel: One of India’s largest labour-intensive export sectors, textiles suffered significantly as buyers in Europe faced longer lead times and higher costs. Retailers began exploring alternative sourcing from countries with shorter routes, squeezing Indian exporters’ market share.

Agriculture and Food Exports: Basmati rice, buffalo meat, and tea exports were all badly affected. Freight costs for tea exports rose by at least 60%, with transit times doubling. For buffalo meat, about 60% of India’s shipments transit the Red Sea to North African markets and Russia — freight costs tripled, while delays ran two to three weeks.

Pharmaceuticals: India, known as ‘the pharmacy of the world’, depends on time-sensitive sea routes for API (Active Pharmaceutical Ingredient) and finished drug exports. Extended transit times threatened the integrity of temperature-sensitive shipments and strained delivery commitments to international buyers.

Energy: India imports approximately 85% of its crude oil, with a significant portion transiting through Gulf waterways. Middle East conflicts — particularly the Iran war risk and Strait of Hormuz vulnerability — threaten India’s oil security. The EIA estimates that 84% of crude and condensate transiting the Strait of Hormuz in 2024 was destined for Asian markets, making India highly exposed to any prolonged closure.

MSMEs: The hardest hit are India’s small and medium enterprises, which lack the negotiating leverage, financial buffers, and logistics sophistication of large corporations. Working capital has been severely strained, with Letters of Credit facing discrepancies due to longer shipment durations and many SMEs struggling to maintain customer relationships amid unpredictable delivery windows.

Russia-Ukraine War: The Ripple Effects on Indian Trade

When Russia invaded Ukraine in February 2022, India’s supply chain faced a different kind of shock. As a nation that historically balanced ties with both Russia and the West, India found itself navigating a complex economic maze.

On one hand, India’s imports of discounted Russian crude oil surged — a pragmatic response to global energy price spikes. By 2024, Russia had become one of India’s top oil suppliers. This move cushioned domestic fuel inflation but drew scrutiny from Western partners and complicated India’s export relationships with the European Union.

On the other, the war disrupted India’s exports to the EU — which contributes over 15% of India’s total goods exports — as Europe grappled with recession fears, energy crises, and tightened budgets. The ongoing conflict also slowed India’s agricultural exports to Eastern European markets and complicated fertilizer procurement, as both Russia and Ukraine are major global suppliers of key fertilizers including urea and potash.

The US-China Trade War: An Opportunity Hiding in Plain Sight

Not all war-related supply chain disruptions are negative for India. The prolonged US-China trade conflict — escalating through tariffs, technology bans, and supply chain decoupling — has accelerated a global shift of manufacturing capacity away from China. India has emerged as a leading beneficiary of this ‘China+1’ strategy.

Apple’s decision to rapidly scale iPhone manufacturing in India is the most prominent example. Apple now sources 20% of its global output from India, a figure that could climb to 35% by 2026–27. India’s share of global smartphone production is projected to rise from 18% in 2024 to 25–28% by 2026. More broadly, India’s Purchasing Managers Index (PMI) for manufacturing has held well above 50 — the expansion threshold — even as China and competitor economies have struggled.

Major global manufacturers including Toyota, Hyundai, and a range of electronics firms have announced expanded investments in India, drawn by its large domestic market, a young and educated workforce, and a more favourable geopolitical profile relative to China.

India is being repositioned as a complementary Asian manufacturing hub to China — not a replacement, but a critical strategic alternative — offering reliable access for global companies seeking supply chain resilience.

India’s Structural Vulnerabilities: What the Wars Have Exposed

The cumulative pressure of multiple simultaneous conflicts has been diagnostic, exposing deep structural weaknesses in India’s supply chain architecture that policymakers must now urgently address.

Overdependence on Single Maritime Corridors: India’s reliance on the Red Sea–Suez Canal route for European trade, and the Strait of Hormuz for energy imports, creates dangerous concentration risk. Diversification of trade routes — including via the India-Middle East-Europe Corridor (IMEC) and expanded use of ports like Mundra and Chennai — is now a strategic priority.
Fragile MSME Trade Finance Infrastructure: War-driven shipping disruptions have exposed how traditional trade finance tools like Letters of Credit are ill-suited to extended transit times. MSMEs in particular need more agile, digitally-enabled financing solutions.
Thin Inventory Buffers: India’s lean supply chain model — designed for efficiency — has proven brittle under wartime shock. Building strategic precision buffers for critical inputs like semiconductors, APIs, rare earths, and fertilizers is now essential.
Limited Supplier Diversification: Decades of dependence on China for electronics components and intermediate goods has left Indian manufacturers exposed to both the US-China trade war and any direct disruption of Chinese supply. Developing domestic manufacturing clusters and alternative supplier networks is a long-term imperative.

India’s Resilience Strategy: Government and Industry Response

India has not been passive. The government’s Atmanirbharta (self-reliance) agenda, the Production-Linked Incentive (PLI) scheme, and initiatives like Make in India have been accelerating industrial self-sufficiency. SEBI’s March 2025 circular pushing for value-chain disclosures in ESG reporting is nudging boards toward wider supply chain oversight beyond the enterprise perimeter.

The World Economic Forum’s Global Risks Report 2025 identifies state-based armed conflict as one of the top immediate global risks. In response, India’s most forward-thinking companies are deploying AI and digital twin technologies for real-time scenario planning, moving beyond traditional annual risk registers toward dynamic war-gaming dashboards that model revenue, EBITDA, cash, and customer service levels under multiple disruption scenarios.

The Confederation of Indian Industry (CII) has been working closely with government ministries to monitor supply chain vulnerabilities, address raw material shortages, and provide real-time feedback from affected sectors. Measures like the government’s RELIEF programme for industry and expanded export credit support signal a coordinated approach to managing ongoing geopolitical shocks.

The Road Ahead: Building a War-Proof Supply Chain

The lesson of the past three years is clear: supply chain risk management can no longer be treated as a logistics function. It is a geopolitical function, a financial function, and a board-level function.

India’s path forward requires a shift in mindset — from optimising lean supply chains to building recoverable ones. Resilience and efficiency are not opposites; the goal is to build resilience first, then optimise within it. Companies that treat supply chain robustness as a competitive advantage — not a cost centre — will be best positioned to navigate the age of permanent geopolitical turbulence.

India’s strategic position as a geopolitical bridge — comfortable with multipolarity and capable of trading with both East and West — gives it a structural advantage that few other nations possess. The country that can turn supply chain resilience into a national competitive edge will not merely survive the wars reshaping global trade. It will emerge from them stronger.

Key Takeaways

The Red Sea crisis has cost India an estimated $30Bn+ in export exposure and driven freight costs up to 8x on key routes.
Multiple simultaneous conflicts — Middle East, Russia-Ukraine, US-China trade war — are creating compounding supply chain shocks for Indian businesses.
MSMEs, pharmaceuticals, textiles, food exports, and energy imports are the most exposed sectors.
The US-China decoupling represents India’s single largest supply chain opportunity, with smartphone and electronics manufacturing leading the shift.
The strategic response requires: route diversification, smarter trade finance, strategic inventory buffers, and AI-enabled risk planning.
India’s geopolitical advantage as a multipolar bridge nation positions it to emerge from global trade disruptions with a stronger manufacturing and supply chain profile.