海角大神

From diplomatic credibility to oil prices, the war in Iran is costing India

The war in Iran is hitting India hard. The rupee slumped to a record low of 94.7875 per dollar Friday as the upheaval in the Middle East disrupted remittances and energy imports. And India鈥檚 stock market fell for the fifth consecutive week as oil and gas prices continued to rise.

Meanwhile, archrival Pakistan has emerged as a critical back-channel intermediary in the conflict 鈥� a role that highlights India鈥檚 absence from diplomatic channels it has long sought to shape.

Prime Minister Narendra Modi, accused by the opposition of undermining India鈥檚 diplomatic neutrality, described the overall situation as 鈥渨orrisome.鈥�

Indeed, the war in Iran is becoming both an economic and a strategic nightmare for Delhi. For decades, India balanced ties with Iran, Israel, and Gulf states, positioning itself as a potential interlocutor. This approach allowed New Delhi to stay relevant across rival blocs without being drawn into them, but now the strategy is facing fierce headwinds.

Praveen Donthi, senior India analyst at the International Crisis Group, says the recent fallout exposes the limits of India鈥檚 balancing act in west Asia.

鈥淎fter over a decade of a favorable global environment, India has entered more turbulent waters,鈥� he says, pointing to frictions after last year鈥檚 India-Pakistan crisis, disagreements over U.S. mediation, and trade tensions. The war in Iran, he says, has 鈥減lunged India into deeper trouble.鈥�

Economic shock

India imports nearly 85% of its crude oil, with much of it passing through the Strait of Hormuz. Even limited disruption raises shipping costs, insurance premiums, and crude prices, feeding inflation and pressuring the rupee.

鈥淢ore than any other conflict, including its own with Pakistan, this war could have the greatest impact on India鈥檚 economy,鈥� says Mr. Donthi. The impacts extend beyond energy. Around 10 million Indians live in Gulf countries, sending home more than $40 billion annually, roughly a third of India鈥檚 remittance inflows. Any slowdown in Gulf economies hits household incomes and domestic demand.

鈥淭he war feels very close,鈥� says Waseem Khan, who hails from Uttar Pradesh in India and now works as a construction worker in Dubai, United Arab Emirates. 鈥淢y job is under threat because of the conflict, and back home my family is dealing with the crisis of cooking gas. If war escalates, it鈥檚 going to affect Indians the most, here and back home.鈥�

Together, energy disruption and remittance risks create a dual shock 鈥� widening the current budget deficit and slowing growth.

However, the deeper setback is geopolitical.

Nonalignment strategy under strain

In late February, Mr. Modi stood alongside Israeli Prime Minister Benjamin Netanyahu in Tel Aviv, the two leaders greeting each other with an embrace. Over two days, they signed agreements upgrading ties to a 鈥渟pecial strategic partnership鈥� spanning defense, technology, agriculture, and innovation.

Less than two days after the visit, Israel and the United States launched the military offensive against Iran. The timing placed India in an immediate bind. For days New Delhi remained publicly silent, an unusual pause for a country that has long projected itself as a balancing power in the region.

鈥淒espite India鈥檚 claims of neutrality, the optics of Modi鈥檚 visit to Israel at a moment of looming conflict effectively placed it in the Israel camp,鈥� says Mr. Donthi. 鈥淭he space for diplomatic maneuvering has shrunk considerably.鈥�

It took several days for New Delhi to make limited outreach to Iran, including a condolence visit by a senior official. Since then, engagement has been cautious and largely driven by energy concerns. Public messaging has also been uneven. While India condemned attacks on Israel and some Gulf partners, it has been more restrained in responding to strikes on Iran.

Ceding diplomatic space

The muted reaction has drawn criticism at home, with opposition leaders accusing the government of weakening India鈥檚 credibility as a neutral actor.

鈥淭he structure [of our foreign policy] has been demolished,鈥� India鈥檚 main opposition leader, Rahul Gandhi, told reporters Tuesday. 鈥淧rime Minister Modi cannot fix it. He will only do what America and Israel will tell him to do.鈥�

Asim Ali, an independent political researcher and columnist based in Delhi, says the timing of Mr. Modi鈥檚 visit to Israel sent a clear signal.

鈥淭his is a departure from its role as a balancing power,鈥� he says. 鈥淎nd it has cost India diplomatic capital.鈥�

Countries such as Pakistan are prepared to fill the void.

For New Delhi, Pakistan鈥檚 rise as an unexpected mediator is not just a symbolic blow. It undercuts India鈥檚 long-standing effort to present itself as the more credible and stable interlocutor in the region.

For years, Mr. Modi has argued that India鈥檚 economic weight, political stability, and friendly ties across west Asia and around the world make it the best choice for Vishwaguru, literally meaning 鈥済lobal guide鈥� 鈥� a country able to bridge rival blocs and shape outcomes in a multipolar world.

In this crisis, however, India has found itself reacting to events rather than influencing them.