Middle East conflict raises fresh risks for India’s agriculture and food economy

• Higher energy, fertilizer costs increase pressure on farm economics
• Export disruptions to Gulf markets may affect rice, horticulture trade

The ongoing conflict in the Middle East is no longer just an energy market concern—it is increasingly emerging as a major risk factor for global agriculture and food systems. For India, where agriculture remains closely linked to imported crude oil, fertilisers and Gulf-region trade routes, prolonged geopolitical tensions could significantly affect cultivation costs, export competitiveness and food inflation.

Rising crude oil prices may push up farm input costs

India’s farm economy remains particularly vulnerable due to its dependence on imported fuel. The recent escalation involving Iran, Israel and the United States has raised concerns over disruptions in the Strait of Hormuz, a key shipping route handling nearly 20% of global crude oil trade. Since India imports nearly 85% of its crude oil requirement, any sustained rise in oil prices directly impacts agriculture through higher diesel costs.

Diesel remains essential for irrigation pumps, tractors, harvesting machinery and transportation of agricultural produce. In many irrigated farming regions, particularly those dependent on tube-well irrigation, diesel contributes nearly 15-18% of operational cultivation costs. Rising fuel prices therefore increase irrigation expenses, mechanization charges and logistics costs, eventually adding pressure on food inflation.

Fertilizer supply risks add to cost uncertainty

India’s dependence on Gulf economies extends beyond fuel to fertilizers and raw materials used in domestic production. Nearly 40% of India’s urea and DAP imports are sourced from Gulf countries, while 60-65% of LNG used in fertilizer manufacturing comes from the Middle East.

India consumed over 62 million tonnes (mnt) of fertilizers in 2023-24, including nearly 36 mnt of urea, making fertilizer availability critical for sustaining crop productivity. International fertilizer markets have already shown volatility during recent geopolitical disturbances, with DAP prices reportedly rising by 20-25% during periods of supply uncertainty. Any prolonged disruption could significantly increase cultivation costs for crops such as rice, wheat, maize and horticultural commodities.

Agricultural exports face logistics and demand challenges

The conflict is also affecting India’s agricultural trade, particularly exports to Gulf markets. India exports significant volumes of basmati rice, spices, tea, marine products, fruits and vegetables to countries such as Saudi Arabia, Iran, Iraq and the UAE.

India exported more than 5 mnt of basmati rice in 2023-24, with Gulf markets accounting for a substantial share. However, disruptions in shipping routes through the Red Sea and Gulf region are increasing freight charges, marine insurance premiums and shipment delays.

Exporters of aromatic rice and perishable horticultural products such as bananas, grapes, pomegranates and vegetables are already facing logistical uncertainty, which may reduce export competitiveness and affect margins.

Jammu & Kashmir horticulture particularly exposed

The implications are especially significant for Jammu & Kashmir’s horticulture sector, which contributes nearly 8% to the Union Territory’s GDP and supports around 3.5 million people. The region produces nearly 2.5 mnt of fruits annually, including apples, walnuts, almonds, cherries and pears.

Gulf countries have traditionally been important markets for premium products such as Kashmiri apples, walnuts, saffron and dry fruits. However, rising freight costs, shipment delays and weaker purchasing power in conflict-affected economies could reduce demand. Longer transit times may also increase spoilage risks for perishable produce, affecting farmer incomes and regional export profitability.

Outlook: Building resilience against global shocks

At the macro level, every $10 increase in crude oil prices is estimated to raise India’s annual import bill by nearly $13-15 billion, while higher fertilizer prices could increase the government’s subsidy burden and inflationary pressures.

The current crisis highlights the need for India to strengthen agricultural resilience through fertilizer self-reliance, diversified trade partnerships, improved cold-chain infrastructure and reduced dependence on imported energy. As geopolitical risks intensify, India’s agricultural stability will increasingly depend not only on production and weather, but also on its ability to manage external economic shocks.