Iran war supply chain disruptions: Impacts on India’s economy
The closure of the Strait of Hormuz has increased the cost of natural gas, disrupted supplies of key fertilizers, and increased cultivation costs around the world—ultimately affecting both farmers’ incomes and household food bills.
- supply chains
- India
- energy prices
By Barun Deb Pal, Anjani Kumar, Smita Sirohi, Banda Sainath, Kriti Sharma, and Praveen K.V.June 25, 2026
Key takeaways
- India’s economy is highly exposed to fuel and fertilizer supply disruptions from the closure of the Strait of Hormuz, an economic modeling analysis shows.
- GDP and household incomes fall across all modeled scenarios. Higher input costs and supply disruptions hit farmers hardest and slow overall economic growth.
- Technology offers the most effective policy path to cushion the blow and build resilience. Improving fertilizer efficiency can limit losses while avoiding large subsidy-driven fiscal pressures.
The closure of the Strait of Hormuz has increased the cost of natural gas, disrupted supplies of key fertilizers, and increased cultivation costs around the world—ultimately affecting both farmers’ incomes and household food bills. For India, it is a reminder that the reliability of food systems depends not only on farm-level production, but also on the stability of energy supplies, shipping routes, and agri-input markets. This is because India’s fertilizer security is deeply tied to global supply chains. The country imports a significant share (~60%) of its diammonium phosphate (DAP) fertilizer, remains fully dependent on imported potash, and even domestic urea production relies heavily on imported liquefied natural gas (LNG). Nearly 50% of India’s LNG and about 85% of its crude oil requirements are also met through imports.
Global crude oil and fertilizer prices shot up by 58% and 66%, respectively, from February (pre-conflict) to April 2026, according to World Bank data. (More recently, those prices have fallen as Iran and the United States pursue negotiations, though shipping through the strait remains uncertain.)
Prices still face extreme upside risks if the geopolitical situation in the region worsens. On the assumption that the conflict ended in April 2026, the International Monetary Fund (IMF) forecasts the average price of crude oil to increase from $69 per barrel in 2025 to $82/bbl in 2026. However, if the war continues up to July 2026, the average price of crude oil is expected to be around $100/bbl in 2026 and might rise further to $125/bbl if the war persists until the end of 2026. In addition to the price spikes, the Indian fertilizer sectors will witness a severe shortage of raw materials due to the halt of shipments through the Strait of Hormuz.
In this post, we assess the short-run effects of such global commodity price shocks on India’s economy and discuss their potential implications for the country’s fertilizer policies. We employed IFPRI’s Rural Investment and Policy Analysis (RIAPA) model to estimate the Iran war’s impact on key macroeconomic indicators such as GDP, exports, imports, and the government budget deficit, and household income. The results show broad negative effects, with falling GDP and incomes of both farm and non-farm households. They also suggest the optimal solution is broad upscaling of technologies to minimize fertilizer usage.