Paints, aviation, tyres, and specialty chemicals could face margin pressure as Iran-Israel conflict drives crude higher

Iran-Israel conflict: Tensions in the Middle East intensified over the weekend, with the US joining hands with Israel to launch strikes on Iran, targeting three Iranian nuclear facilities and warning of further action if Tehran does not pursue peace.

The attacks from Washington came unexpectedly, as President Donald Trump had stated on Friday that he would decide on a potential strike “within the next two weeks,” raising hopes for a diplomatic window.

Escalating tensions between Iran and Israel sent shockwaves through global equity markets last week, which were further intensified on Monday. With the situation deteriorating further, investors are now bracing for how the conflict may unfold, especially as equities are already under pressure from ongoing global trade wars and warnings from major international agencies about a potential economic fallout.

There are growing concerns that other countries may join the ongoing war, particularly after Russia had earlier warned the US against taking military action.

Meanwhile, the Trump administration has signaled a willingness to renew talks with Iran and avoid a prolonged war. In response to the surprise US strikes, Iran has reportedly decided to close the Strait of Hormuz, through which about 20% of the world’s crude oil passes—pushing crude prices to a five-month high on Monday.

Iran also threatened retaliatory strikes against the US, with Supreme Leader Ayatollah Ali Khamenei earlier warning that any military action could cause “irreparable damage. Back at home, the rising tensions in the Middle East pose the biggest challenge for the Indian economy, as the country meets over 80% of its crude requirements through imports.

If crude prices continue to rise—already up 13% since June 13—it may push inflation higher, dampen consumer demand, widen the trade deficit, and strain the fiscal deficit and budget math. If crude oil prices continue to be elevated over longer periods, it could impact India Inc’s profits as well. 

Fertilizers, diamonds, and chemicals could see an indirect impact from the war

Amid rising crude oil prices and geopolitical tensions between Iran and Israel, Crisil Ratings warns that certain Indian sectors could face profitability pressures if the conflict escalates further. 

While India’s direct trade with Iran and Israel is minimal—under 1% of total trade—key sectors such as basmati rice, fertilizers, diamonds, and chemicals may still feel the ripple effects.

Crisil notes that although Iran and Israel together account for around 14% of India’s basmati rice exports, the impact on demand is expected to be limited due to the staple nature of the product and India’s diversified export markets. However, a prolonged crisis could delay payments and strain working capital cycles.

In the fertilizer sector, Israel supplies around 7% of India’s muriate of potash (MoP) needs, but the overall exposure is low, and alternative sourcing options reduce risk. Similarly, India’s diamond trade with Israel—mainly as a trading hub—is limited and manageable due to alternate routes through Belgium and the UAE.

Downstream refiners, aviation, and chemicals face cost-pass through challenges

Crisil also highlights the varying impact of rising crude prices across industries. While upstream oil companies stand to benefit, downstream refiners, specialty chemicals, paints, and aviation could see margin pressure due to limited ability to pass on costs.

Sectors such as tyres, flexible packaging, and synthetic textiles—where crude-linked input costs are high—may manage better due to strong demand and some pass-through ability, though with a time lag.

“The near-term impact on most Indian firms is expected to be limited, supported by strong balance sheets and low capex intensity,” Crisil said. However, it warned that “a prolonged escalation could aggravate the impact, mainly through higher oil prices and supply chain disruptions.” Crisil added that it is closely monitoring the situation and will assess credit quality implications case by case if tensions escalate.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.