How the war rewired India’s trade with Gulf nations

The US-Iran war has dramatically reshuffled India’s USD 178-bn trade corridor with the GCC — exposing the risks of its dependence on the Strait of Hormuz, while rapidly elevating Oman’s status as an alternative route to the GCC.

The blockade of the Strait of Hormuz exposed India’s concentration risks and dependence on the UAE as a trade and logistics hub, Abhijit Mukhopadhyay, senior economist at Chintan Research Foundation, tells EnterpriseAM.

The great Gulf rerouting

The big picture: Nearly one-fifth of India’s imports and 14% of exports were at risk to the Hormuz blockade at the start of the war. However, India’s trade shock from the war recovered faster than feared. Exports to the GCC rebounded to USD 5.3 bn in May after collapsing 57% y-o-y to USD 2.1 bn in March, as per Commerce Ministry data.

A less risky inroad: The rebound in Gulf trade came primarily after exporters sped up energy cargo routing through Sohar, Salalah, and Duqm ports to bypass the Hormuz blockade. This allowed shipments to reach the UAE and the wider Gulf despite heavy maritime security risks, Commerce Secretary Rajesh Agrawal said.

UAE still on top, no longer untouchable

Trade with the UAE and Saudi Arabia slumped sharply in March — at the peak of hostilities — before rebounding in April, with flows remaining below February levels in most cases.

Exports to the UAE fell 60.3% m-o-m from USD 3.2 bn in February to USD 1.2 bn in March, before recovering 68.6% m-o-m to USD 2.1 bn in April. Similarly, imports dropped 45.1% m-o-m to USD 2.5 bn in March before coming back up by 57.6% in April.

The recovery suggests that March’s slump was temporary, with energy and merchandise trade flows normalizing after the disruption, although trade with the Emirati market had yet to regain February levels.

An indispensable anchor: Indian exports to the UAE rose to USD 3 bn in May. “Any disruption around the UAE-linked routes quickly becomes a [India-UAE] CEPA stress test, exposing a gap between tariff liberalization and logistics resilience,” says Mukhopadhyay.

Riyadh gains

Trade with Saudi Arabia recovered even more strongly after the ceasefire. Exports declined 44.2% in March to USD 527.8 mn, before rising 61.4% in April to USD 851.9 mn, while imports fell 26% to USD 2 bn before surging 86.4% to USD 3.8 bn. Despite the rebound, April trade with both Saudi and the UAE remained below February levels in most categories, indicating only a partial recovery.

Saudi Arabia came up as the standout performer, with exports rising 11.1% y-o-y to USD 915.5 mn. “Saudi Arabia gained import share while the UAE lost share, showing rerouting inside the Gulf rather than a smooth continuation of the old pattern,” Mukhopadhyay notes.

The arrival of the Oman corridor

Imports from Oman surged 305% y-o-y in May, reaching USD 1.9 bn, making it India’s 10th-largest import source globally, even as exports to Oman fell 10.4% y-o-y in May.

Why it matters: The Oman corridor initially prioritized perishable goods before expanding to broader merchandise exports. The route has now established Oman as a critical logistics gateway for Indian trade into the Gulf. “India can capitalize by using Oman as a diversification point for logistics, transshipment, and regional redundancy, rather than treating it as a full substitute for the UAE,” Mukhopadhyay opines. India is expected to continue diversifying its energy sourcing, with procurement moving toward greater supply flexibility and risk management.

The rest of the Gulf counts losses

Qatar and Kuwait experienced the sharpest hits in trade flows. Qatari imports fell 82.9% y-o-y, from USD 911 mn last year to USD 156 mn in May — the most notable dip — given India’s historic dependence on Qatari LNG.

Imports from Kuwait collapsed by 96.4% in May — despite its major role in India’s crude supply mix. The magnitude of the drop suggests a near-complete disruption of oil flows.

The post-Hormuz lesson

“The most exposed sectors are export lines tied to Gulf consumption and fast re-export chains, especially in food and consumer goods,” explains Mukhopadhyay. A prolonged slowdown could slow India's export growth, widen the trade deficit, and put additional pressure on the current account deficit — if energy import costs remain high. “The near-term risk is not collapse, but a persistent drag on external-sector momentum.”

India needs to plan a multi-port Gulf strategy, Mukhopadhyay argues. “If disruptions persist for another quarter, the greatest damage may come not from lower trade volumes alone but from delayed deliveries, canceled orders, and buyers shifting to more reliable suppliers.”

The conflict has also cast uncertainty over the India-Middle East-Europe Economic Corridor. While not dead, Mukhopadhyay believes the project has weakened as a near-term proposition and will need to be rebuilt.

What’s next: Looking ahead, Gulf sovereign funds are unlikely to retreat from India despite trade disruptions, Mukhopadhyay notes. Instead, investors may increasingly favor Indian manufacturing and other real-economy sectors as a hedge against regional volatility. The near-term costs remain substantial, he says.