Iran War

On Saturday morning, your columnist welcomed participants to an unusual weekend session with the explanation that the subject could not wait. The conflict in the Middle East had already moved beyond the realm of distant geopolitics and into the calculus of business. Oil, gas, shipping lanes, insurance costs, inflation, fertiliser supplies and market sentiment were all in play. That, in essence, was why IMA convened the discussion at short notice and why Pramit Pal Chaudhuri, India head of Eurasia Group, was invited to lead it. Few observers combine geopolitical insight with such an understanding of how statecraft, energy flows and commercial risk playout. Mr Chaudhuri’s main argument was that the conflict cannot be understood as an isolated exchange between Israel and Iran. It is the product of a larger rearrangement in West Asia starting with America’s gradual withdrawal from the region, the weakening of the old security order and the emergence of competing regional coalitions. For years, the basic fault line was straightforward – Iran versus the rest. Tehran built influence across Iraq, Syria and Lebanon and used this combination to threaten its rivals. The response, led in large part by the UAE, was to construct a new regional architecture that did not depend entirely on America. The Abraham Accords, the attempt to bring Israel into a wider Arab security framework and the inclusion of India in newer groupings all formed part of that project.

For a while, that architecture seemed to be taking shape. But the October 7 attacks and Israel’s subsequent military campaign blew apart any illusion of stability. Mr Chaudhuri argued that Israeli Prime Minister Benjamin Netanyahu saw in this turmoil both danger and opportunity. Danger because October 7 exposed a grave failure of Israeli security and opportunity because Iran and its proxies appeared weaker than before. Hezbollah was badly degraded. Syria’s old order collapsed. The broader Iranian axis of influence was fraying. In that setting, Israel concluded that this was the moment to push harder against what it regards as its only true existential threat – the Iranian regime and, even more importantly, its nuclear and missile capabilities. The war, then, is not merely retaliatory. It is strategic. Israel believes time has opened a narrow window in which Iranian power can be set back by years. Iran, for its part, sees the fight in equally existential terms. That is what makes the conflict so dangerous. Both sides believe they can absorb pain. The true uncertainty lies not in Tehran or Tel Aviv, but in Washington. Israel cannot sustain such a campaign without American support. Iran knows this too. Hence its strategy has shifted towards imposing economic costs on the United States and its allies rather than pursuing only direct military escalation.

That has profound implications for the Gulf. One of Mr Chaudhuri’s sharper insights was that the most immediate vulnerability may not be oil production itself, but the economics of movement. Iran does not need physically to shut the Strait of Hormuz in order to damage trade. It need only raise the threat level enough for insurers and shipping companies to balk. That, by itself, can disrupt flows, drive up prices and create uncertainty across energy and commodity markets. In this conflict, perception can be as powerful as blockade. For India, the picture is sobering but not alarming. Mr Chaudhuri’s assessment was that there is no direct security threat to India. The concern is economic. Oil, in his telling, is manageable. India has some buffer stocks, global supply remains available and alternative arrangements can be made. The more sensitive areas are LNG, fertiliser inputs such as urea and LPG for households. Here the risks are more immediate, because gas markets are tighter and cooking fuel carries obvious political sensitivity. Beyond energy, other industrial inputs, including sulphur and aluminium, could also come under pressure if the war drags on.

India’s diplomatic position, meanwhile, has become clearer. New Delhi remains formally neutral, but its strategic anchor in the Gulf is now the UAE. That matters. India has conveyed, both publicly and privately that attacks spilling into the southern Gulf are not acceptable. The war between Israel and Iran may be one thing, but threats to the UAE, with which India has deep economic and strategic ties, are quite another. Perhaps the most consequential part of Mr Chaudhuri’s remarks concerned the larger geopolitical order. America, he argued, is not disappearing overnight, but it is retreating in stages. Each intervention is more reluctant than the last and each commitment more conditional. That leaves middle powers to work more closely with one another. India has already begun to move in that direction, deepening ties with countries such as Japan, France, parts of Europe, Canada and the UAE. In a more fragmented world, such partnerships will matter more.

His broad expectation was that the war may not endure for very long, perhaps only a few weeks, largely because economic strain and domestic politics in America will begin to bite. Yet even if the fighting subsides soon, the lesson will remain. The old order in West Asia is gone. A looser, harsher and more transactional one is taking its place. For business leaders, that means geopolitical risk is no longer a background concern. It is becoming a permanent line item in strategy.

Annexure: Some Pertinent Issues Raised During the Conversation Several additional issues emerged during the discussion that were not covered in detail in the main note, but are nonetheless relevant for business leaders assessing the broader implications of the conflict.

Domestic Stability in the Gulf Monarchies

A question was raised on whether the Gulf monarchies, particularly Bahrain and parts of Saudi Arabia with large Shia populations, might face internal unrest as the conflict escalates. Pramit Pal Chaudhuri noted that while these communities exist, they are under very tight political control and have so far shown little inclination to mobilise. The monarchies’ greater concern is not domestic unrest but the vulnerability of their energy infrastructure. A sustained Iranian attack on oil refineries or processing facilities could devastate production and trigger global economic disruption. So far, both sides appear to be exercising restraint on this front.

Energy Infrastructure as a Strategic Red Line

Closely related to the above is the tacit understanding that large-scale attacks on Gulf oil infrastructure could dramatically widen the conflict. Iran retains the capacity to damage key installations such as refineries and petrochemical complexes through waves of inexpensive drones. Doing so would have severe consequences for the global economy and would likely compel the Gulf states to enter the war militarily. For now, Iran appears to be holding back from such escalation.

Shipping Risks and the Insurance Problem

Another issue concerns the flow of shipping through the Strait of Hormuz. Even without a physical blockade, the withdrawal of insurance cover, particularly by large global insurers, has significantly increased risk premiums. This alone can discourage shipping companies from sending vessels through the Gulf. India, which uses relatively few nationally flagged ships and often relies on foreign vessels, may face additional complications if shipping companies refuse to operate in high-risk zones.

The Risk of Misidentification at Sea

Even where Iran has signalled that certain ships will not be targeted, the decentralised nature of its military command raises the possibility of mistakes. Local commanders operating missile or drone systems may not have clear intelligence on the ownership or cargo of vessels. As a result, ships belonging to neutral countries could still be hit inadvertently. This uncertainty is one reason many shipping operators remain reluctant to sail through contested waters.

Depletion of Missile Inventories and the Rise of Drone Warfare

Another point discussed was the depletion of missile inventories across all combatants. Cruise missiles and sophisticated interceptors are expensive and take time to manufacture. As a result, both sides are increasingly shifting toward cheaper drone warfare. Modern conflicts are demonstrating that industrial-scale drone production, sometimes numbering in the millions annually, may become a defining feature of future warfare.

The Legal Framework of Naval Warfare

Participants also raised the question of the sinking of an Iranian warship in Sri Lankan waters. Under international law, once a state of war exists, naval vessels of belligerent states become legitimate targets even outside territorial waters. The rules of engagement permit such attacks in international or economic zones. However, naval commanders can declare their vessels non-combatant and seek safe harbour in neutral ports, a procedure that some Iranian vessels reportedly followed while others did not.

Potential Strains on Fertiliser and Agricultural Supply Chains

Beyond energy, fertiliser availability could emerge as a secondary economic challenge. LNG is a key input for fertiliser production, particularly urea. If gas supplies tighten, fertiliser output may fall, affecting agricultural cycles in several countries across Asia. India currently has some buffer, but prolonged disruption could affect both domestic production and imports.

The Growing Role of Middle Powers

The discussion also touched on the evolving geopolitical order. As the United States gradually reduces its global security commitments, middle powers are increasingly collaborating to stabilise trade, supply chains and technology partnerships. India, Japan, Europe, Canada and several Gulf countries are exploring deeper cooperation in these areas. Such arrangements may shape the emerging global economic architecture.

The Future of the US Dollar

Finally, concerns were raised about the long-term trajectory of the US dollar. While it remains the world’s dominant reserve currency, persistent fiscal deficits and America’s unwillingness to act as a global security guarantor may gradually erode its privileged position. Although no clear alternative has yet emerged, the gradual diversification of reserves, towards gold or other currencies, has already begun.

These issues, while not central to the immediate battlefield developments, underline the wider economic and geopolitical consequences of the conflict. For businesses and policymakers alike, they highlight how a regional war can ripple through energy markets, supply chains and the evolving global order.