The impact of the Middle East tensions on most Indian companies is expected to be limited in the near-term, with low capex intensity and balance sheet strength of firms offering a cushion from potential vulnerabilities, according to a Crisil report released on Friday. However, a prolonged escalation could aggravate the impact mainly due to a rise in oil prices and disruption in supply chains which could stoke inflation, the report added.

“So far, the ongoing uncertainties in the Middle East have not had any significant impact on India Inc’s global trade. However, if the situation deteriorates, some sectors such as basmati rice could see a heightened impact and will require monitoring, while others like fertilisers and diamonds — both cut and polished — may also see some impact,” the report stated.

Also, prolonged and increasing uncertainties can result in a rise in air/sea freight cost and insurance premiums for export/import-based sectors, the report states.

India’s direct trade with Israel and Iran is minuscule at less than 1 per cent of the total trade. While India’s major export to Iran is basmati rice, trade with Israel is more diversified, and includes fertilisers, diamonds and electrical equipment.Iran and Israel accounted for around 14 per cent of India’s basmati rice exports in fiscal 2025. But because basmati rice is a staple, the impact on demand due to the ongoing tensions is likely to be limited, according to the Crisil report.

Additionally, India’s ability to export to other countries in the Middle East, the US and Europe reduces demand risk. But a prolonged crisis can lead to possible delays in payment from counterparties in these regions, elongating the working capital cycle, the report states.For domestic diamond polishers, Israel is mainly a trading hub, accounting for about 4 per cent of the total diamond exports last fiscal.

Additionally, around 2 per cent of all rough diamonds imported are from Israel. Polishers also have alternative trading hubs such as Belgium and the United Arab Emirates, with ultimate buyers based in the US and Europe, which will help them to manage any adverse impact on the sector, the report states.

Repercussions of any further significant increase in the crude oil prices from the current levels would vary across sectors.Higher oil prices will benefit upstream oil companies because it translates to more revenue, while their costs are fixed.For downstream oil refiners, operating margins could get squeezed due to higher input cost as they may have limited ability to fully pass on the same through increase in retail fuel prices.For aviation companies, fuel accounts for about 35-40 per cent of operating cost. Further, the operators will also witness higher fuel cost due to increased travel time on account of airspace closures/diversions.