The ongoing Iran-Israel conflict could have significant repercussions across the Indian subcontinent, potentially disrupting trade and labour markets for Bangladesh, India, and Pakistan with Iran, according to regional analysts.
Should the conflict persist, it is expected to impact imports, exports, and labour markets with other Middle Eastern countries as well. Indian companies operating in Israel are likely to face losses, while Pakistan could see heightened security risks.
Iran ranks as the world’s second-largest holder of natural gas reserves and the third-largest in crude oil. A prolonged conflict between the two nations would inevitably drive up oil and gas prices in the subcontinent. Additionally, airfares and travel times to Middle Eastern countries are likely to increase, with the region’s labour market also facing disruptions.
Impact on Oil Prices
The Iran-Israel conflict is poised to significantly affect fuel prices across the Indian subcontinent. Oil prices are expected to rise gradually. Bangladesh, India, and Pakistan import oil and gas from various Middle Eastern countries. India and Pakistan directly import oil from Iran, while Bangladesh relies on LNG imports from Qatar and Oman. Iran has threatened to close the Strait of Hormuz amid the conflict, which, if realised, would force countries to use alternative routes for oil and gas imports, significantly increasing costs.
Impact on Middle East Labour Markets
The Indian subcontinent has a substantial workforce in Iran, with many Indian and Pakistani workers engaged in various sectors. Over 2,000 Bangladeshi workers are also employed in Iran. However, millions from the subcontinent work in neighbouring countries such as Iraq, Oman, Lebanon, and Jordan. A prolonged conflict could severely disrupt labour markets in these countries, potentially leading to job losses for many workers.
Rising Airfares
The conflict has prompted several Middle Eastern countries to suspend air travel, while others are rerouting flights to avoid Iranian and Israeli airspace. This has resulted in longer flight paths, driving up ticket prices and extending travel times. The subcontinent has significant travel connections with the Middle East, as millions of workers from Bangladesh, India, and Pakistan are employed in various professions across the region. Some countries have temporarily closed their airspace due to the conflict, leaving travellers stranded.
Impact on Cost of Living
Disruptions to oil and gas imports from Iran and the Middle East would have a negative impact on the cost of living in the Indian subcontinent. Rising fuel prices would increase transportation costs, goods delivery charges, production expenses, and electricity generation costs. Additionally, imports and exports of various goods would be affected, and remittances from Middle East countries could decline due to the conflict’s fallout.
Decline in Bilateral Trade
Trade between Bangladesh and Iran is relatively modest, but the conflict is expected to severely disrupt even these limited commerce commercial ties. Bangladesh exports 30 to 40 tonnes of jute yarn to Iran annually. According to a report by the Bangladesh Jute Spinners Association, 39,000 tonnes of jute yarn were exported to Iran in the 2015-16 fiscal year, compared to 33,000 tonnes the previous year. Bangladesh imports spices and carpets from Iran.
According to the Ministry of Commerce, bilateral trade between Bangladesh and Iran in the 2024-25 fiscal year amounted to $16.17 million, with Bangladesh importing $1.17 million worth of goods and exporting $15 million. Both countries are members of the D-8 organisation.
Data from the Bangladesh Export Promotion Bureau’s website indicates that exports to Iran from July to May in the 2024-25 fiscal year totalled $10.25 million, including jute products, multiple cables, plastic and rubber products, and ready-made garments.
Commerce Secretary Mahbubur Rahman told Banglanews that Bangladesh has no direct trade with Israel. However, he noted that Israel engages in some consumer trade with neighbouring countries, particularly in ready-made garments. He added that shortages are common in any country during wartime, but this is unlikely to cause significant problems for Bangladesh.
He said trade with Iran was once robust, but formal trade has declined due to various sanctions. Iran imports jute yarn from Bangladesh, used as raw material in the ready-made garment industry and for carpets, with prices set annually. Rahman clarified that Bangladesh does not deal directly with Iran in this trade. A prolonged conflict could have some impact, as wars typically create challenges for supplier countries worldwide.
The secretary noted that Bangladesh generally relies on oil supplies from the Middle East. A disruption in the Strait of Hormuz would have global repercussions. However, as Bangladesh sources oil from Persian Gulf countries like Qatar and Saudi Arabia, no major issues are anticipated. Long-term oil contracts provide some stability, and since Iran is not part of Bangladesh’s oil supply chain, the conflict has not directly affected the country’s oil market. Nonetheless, a prolonged war could potentially cause disruptions.
Rahman added that an extended conflict would create broader challenges. To address this, the Energy Ministry has held meetings and made decisions to explore alternative markets. Efforts are underway to source some LNG from the United States. While the oil market remains unaffected for now, an escalation of the conflict could lead to problems.
He further stated that political and diplomatic discussions are ongoing globally regarding the situation. However, as Bangladesh’s supply chain has no direct trade links with Iran or Israel, the country has not experienced significant impacts so far.
Trade and Supply Chain Concerns
The Strait of Hormuz and the Suez Canal are critical routes for global trade, with Iran controlling the former. Bangladesh uses these routes to export ready-made garments to Europe and the United States. A prolonged Iran-Israel conflict could lead to the closure of the Strait of Hormuz, which Iran has already threatened. Such a closure could increase export costs by 30-35%, negatively impacting Bangladesh’s garment sector.
India's Balancing Diplomacy
India has adopted a balanced diplomatic approach in response to the Iran-Israel conflict, maintaining ties with both nations. India imports significant quantities of oil from Iran and has fostered diplomatic relations with both countries.
Following the outbreak of the conflict, Indian Prime Minister Narendra Modi spoke by phone with Israeli Prime Minister Benjamin Netanyahu, while Indian Foreign Minister Dr S Jaishankar held discussions with his Iranian counterpart. In an official statement, India urged both sides to refrain from escalating tensions and to resolve issues through diplomatic channels. India expressed readiness to provide any possible assistance, citing its close and friendly relations with both nations.
However, Congress leader Priyanka Gandhi sharply criticised the Indian government’s stance, accusing it of not only remaining a silent supporter of Israel but also encouraging its actions. She described Israel’s conduct as a gross violation of a nation’s sovereignty and contrary to international norms.
Impact on India-Pakistan Trade
India and Pakistan both maintain trade relations with Iran, with annual trade volumes of approximately $2 billion each. India exports rice, tea, sugar, and pharmaceuticals to Iran, while importing oil, chemicals, nuts, spices, and fruits. Iran-Pakistan trade reached $2.8 billion in 2024, but the ongoing conflict is expected to reduce trade volumes for both countries.
Indian Companies in Israel Incur Losses
Several Indian companies, including TCS, Wipro, Adani Group, SBI, Sun Pharma, and Infosys, operate in Israel and have already faced initial losses due to the conflict. A prolonged war could lead to severe financial setbacks, potentially forcing some companies to scale back or exit their operations in Israel.
Pakistan’s Security at Risk
Pakistan shares a 909-kilometre border with Iran, which has long been a source of tension. Both countries have accused each other of harbouring terrorist groups. In January last year, Iran launched missile strikes in Pakistan’s Balochistan province, targeting alleged bases of the Baloch separatist group Jaish al-Adl. Within 24 hours, Pakistan retaliated with strikes in Iranian territory, citing similar reasons. The Iran-Israel conflict has heightened security concerns in Balochistan, prompting Pakistan to close its border with Iran as a precautionary measure.
Expert Opinions
Former Bangladeshi ambassador Munshi Faiz Ahmed told Banglanews that the conflict could disrupt bilateral cooperation between Bangladesh and Iran, as well as trade, labour markets, and fuel supplies across the Indian subcontinent. He also said that major powers such as China and Russia could become preoccupied with the conflict, potentially affecting their cooperation with the subcontinent.
Sumit Dutt Majumdar, former chairman of India’s Excise and Customs Board, told international media that India faces both economic and diplomatic challenges due to its friendly ties with both Iran and Israel. He emphasised the importance of maintaining good relations with both nations, particularly given India’s reliance on Iranian oil.
Pakistani security analyst Ehsanullah Tipu Mehsud said that Pakistan has historically aligned with the United States in regional conflicts, such as the Afghanistan war. However, the current situation is complicated by Pakistan’s significant Shia population (15% of its 25 crore people) and existing sectarian tensions. Taking a public military stance against Shia-majority Iran could trigger dangerous domestic backlash.
On 13 June, Israel launched military strikes across Iran, prompting retaliatory attacks from Tehran. Both nations continue to report mounting casualties and damage daily.
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