Mideast tensions to have limited impact on India Inc in near-term: Crisil

New Delhi, June 20 (IANS) 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.

The uncertainties in the Middle East region have impacted global crude oil markets, with Brent hovering in the range of $73-76 per barrel (bbl) over the past one week — up from an average of $65 per bbl during April-May 2025. If crude oil prices continue to be elevated over longer periods, it could impact India Inc’s profits, the report points out.

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 that

are directly or indirectly exposed to it and impact on profitability will depend on the ability to pass on the cost increase.

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 specialty chemical companies, about 30 per cent of the operating cost is crude linked. Here, the ability to pass on steep rise in input cost would be limited as the sector is only just witnessing return to normalcy after seeing profitability pressures due to suppressed demand compounded by continued Chinese dumping and inventory correction by suppliers over the past two fiscals.

Similarly, the paint sector could see some pressure on margin as around 30 per cent of its production cost is linked to crude, where competitive intensity could limit the ability to pass on elevated input prices to customers and impact profitability to some extent.

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.

About half of the tyre sector’s operating cost is crude linked. As for revenue, 60-65 per cent accrues from the replacement market and the balance from original equipment manufacturers (OEMs). While the tyre makers can quickly pass on input price increases in the replacement market with relative ease, the pass-on normally happens with a lag for OEM sales which could impact margins in the interim.

For flexible packaging and synthetic textile firms, while over 70-80 per cent of production cost is crude linked, the impact of an increase in its price could be moderate due to the improved demand-supply scenario and firm’s ability to pass on cost to customers, albeit with a slight lag, the report added.

–IANS

sps/na