India’s Gulf Exposure: Economy, Security, and Strategic Risk

Since the war broke out with strikes on Tehran on February 28, the Strait of Hormuz has ceased to provide a safe passage for commercial shipping. Neither an April truce nor the U.S.-Iranian Memorandum of Understanding (MoU) signed in June proved durable. Attacks on vessels resumed in early July, and American President Donald Trump declared the truce null and void. By mid-September, traffic through the Strait remained well below normal levels, despite the United States providing tankers with military escorts. Meanwhile, a regional meeting in the Omani city of Salalah to discuss the reopening of the Strait was indefinitely postponed. The instability subsequently spread to the Bab al-Mandab.

This war has brought to light a strategic reality that may not have been sufficiently clear in New Delhi’s calculations. India does not merely import energy from the Gulf. Rather, it is an emerging economy whose economic security has become increasingly dependent upon Gulf stability. This distinction goes beyond mere semantics; it speaks to the very nature of the problem and the types of solutions that might be possible. A country that relies on the Gulf solely for oil can diversify its sources, yet one that is linked to the Gulf through an integrated system of trade, energy, investment, labor, remittances, and supply chains cannot easily replace such a framework, as what would need to be replaced is not a single resource, but a complex, deeply intertwined web of relationships developed over decades.

Recent months have added two important new dimensions to this situation. The first is the paradox of resilience: the Indian economy proved more resilient during the initial phase than many had anticipated. Yet this resilience has rested on temporary buffers or politically conditional arrangements; the underlying structural vulnerabilities remain unchanged. The second dimension is that this exposure is no longer merely economic but now coincides with Pakistan’s emergence as a security partner for the Gulf at a time when the American security umbrella is receding. This turns India’s challenge from a matter of economic vulnerability into a geopolitical predicament.

Measuring Interdependence

Recent data reveal the extent of this interconnectedness more clearly than is typically presented in the literature on India-Gulf relations. Taking the Gulf as a whole, including Iraq and Iran alongside the Gulf Cooperation Council (GCC) states, India’s bilateral merchandise trade with the region reached approximately $207.8 billion for the 2025-26 fiscal year ($178.6 billion with the GCC states, $27.5 billion with Iraq, and $1.6 billion with Iran). This accounts for nearly 17.1% of India’s total merchandise trade, which stood at approximately $1.2 trillion. This broader definition explains the discrepancy between this figure and the commonly cited trade figures for the GCC alone, which reached $178.6 billion in the 2024-25 fiscal year, making the GCC as a bloc India’s largest trading partner.

Breaking these figures down, India’s exports to the region totaled approximately $59.9 billion, comprising $55.7 billion to Gulf states, $3.0 billion to Iraq, and $1.3 billion to Iran; this accounted for about 13.6% of India’s total merchandise exports. Meanwhile, its merchandise imports from these countries reached approximately $147.8 billion, or some 19.1% of its total imports. In other words, nearly one out of every five dollars India spends on merchandise imports goes to the Gulf.

The energy sector highlights this vulnerability even more starkly. Before the war, the region supplied India with about half of its crude oil imports and roughly 60% of its natural gas imports, while nearly 90% of its liquefied petroleum gas (LPG) imports passed through the Strait of Hormuz. According to the research outfit CRU Group, Qatar alone accounts for about 44% of India’s liquefied natural gas (LNG) imports. This vulnerability is further compounded by the fact that India’s strategic oil reserve covers only about nine and a half days of net imports; India has no equivalent strategic reserve of natural gas.

The war has served as a practical test for the limits of diversification. This brings us to the issue of oil. Within weeks of the conflict breaking out, the share of India’s crude imports arriving via routes that bypass the Strait of Hormuz rose from about 55% before the crisis to around 70%. This shift was achieved by diversifying procurement across some 40 countries and negotiating additional shipments from Russia, West Africa, and the U.S., facilitated by a temporary American sanctions waiver that permitted the purchase of Russian oil. According to preliminary estimates from Kpler, Russia remained India’s largest supplier in August, accounting for over 40% of its crude imports, followed by ​​the UAE and Saudi Arabia.

However, this relative success comes at a cost. Gulf crude takes about seven days to reach Indian ports, compared to two to three weeks for Russian crude, and 25 to 40 days for crude from Africa or the U.S. Furthermore, much of the Russian alternative remains contingent upon a waiver granted by Washington. Diversifying gas sources is yet more challenging; in early March, Qatar halted LNG production and declared force majeure. Subsequently, Iranian strikes on its vast facility at Ras Laffan damaged two production lines, knocking out approximately 17% of Qatar’s export capacity, roughly 12.8 million tons annually. Repairs are forecast to take three to five years.

The shock quickly reached India, prompting the government to invoke emergency powers to compel refineries to increase the production of cooking gas. Gas supplies to fertilizer plants have also shrunk to 70% of pre-war levels, in a country whose vital urea plants rely on gas, and to which some 80% of the ammonia required is imported from West Asia. Analysis firm Energy Aspects has projected that Qatar’s full-year LNG exports for 2026 will reach no more than half of their pre-war export capacity. From an Indian perspective, then, the Strait of Hormuz is more than merely a passage for oil tankers; it is a vital artery that fuels electricity generation, fertilizer production, domestic cooking, and industry.

This raises the question of alternative routes, first and foremost the India-Middle East-Europe Economic Corridor (IMEC). Could the IMEC offer a way out of the ‘Strait of Hormuz dilemma’, or will it deepen India’s structural dependency on the Gulf? The evidence points to the latter. The corridor’s value will depend heavily on its port of entry. Routing through Abu Dhabi’s Khalifa Port or Dubai’s Jebel Ali facility would maintain reliance on the Strait of Hormuz, whereas using Fujairah, or Omani ports on the Gulf of Oman, would reduce it. Yet even in its modified form, the corridor would merely shift India’s dependence from maritime chokepoints to terrestrial stability in the GCC states. An attack on a Saudi pipeline in September demonstrated that infrastructure crossing the Arabian Peninsula on land is also a target. In short, the corridor provides India with a contingency, rather than a true alternative, while Oman, with ports situated beyond both the Strait of Hormuz and the Bab al-Mandab, emerges as a pivotal link in any strategy designed to bypass these chokepoints.

From Hormuz to the Value of the Rupee

Energy shocks to India unfold in two stages. First, rising prices inflate import costs and increase demand for the U.S. dollar, weakening the rupee and driving up the cost of all the country’s imports. Second, the higher cost of fuel seeps into prices for transportation, food, fertilizers, and electricity, transmitting the crisis from oil tankers in the Arabian Sea all the way to factories, farms, and the pockets of Indian consumers.

This sequence played out in real time during the early months of the war. In March, the currency plummeted to record lows, hitting 93 rupees to the greenback. That same month, foreign funds withdrew approximately $11 billion from the Indian stock market, the largest monthly outflow ever recorded. The government forfeited approximately 140 billion rupees in monthly revenue due to its tax cuts on gasoline and diesel. Merchandise exports fell by 7.4% year-on-year in March, as exporters were forced to reroute shipments around the Cape of Good Hope. The Reserve Bank of India’s projections for the 2026/2027 fiscal year now place growth at 6.7% and inflation at 5.0%, up from its 4% target. Prior to the war, government estimates had projected growth at between 7.0% and 7.4%.

The picture is not entirely bleak. The Indian economy registered annualized growth of 7.8% in the second quarter of 2026, surpassing the central bank’s forecasts. Yet this paradox merely reframes, rather than refuting, the argument that India is strategically vulnerable. The initial shock of the war was absorbed by three buffers: Russian oil, whose flow was facilitated by a U.S. exemption; foreign exchange reserves, which were deployed to prop up the rupee; and an unexpected surge in financial remittances. All these buffers were either temporary or conditional. The U.S. Energy Information Administration (EIA) has forecast that most of the halted oil production will not be restored before the second half of 2027. In other words, a missile targeting a tanker in the Strait of Hormuz could ultimately impact the value of the rupee in Mumbai or the cost of food in New Delhi. This is the very definition of “strategic vulnerability”; while events are geographically distant, they have immediate economic impacts.

Another fact possibly carries greater political significance in India than data on oil and gas. The Indian government estimates that approximately 10 million of its citizens reside in the Gulf region. According to the Reserve Bank of India (RBI), they account for nearly half of all Indians living abroad. This massive human presence means that the India-Gulf relationship transcends traditional state-to-state ties. The livelihoods of millions of Indian families are directly linked to Gulf labor markets, and several Indian states, notably Kerala, depend heavily on remittances from Doha, Dubai, Riyadh, Kuwait, and Muscat.

The war has posed a direct test to this arrangement. At least eight Indians were killed in various incidents during the first few weeks of the conflict, including mariners aboard tankers that came under attack, and two individuals killed in a drone attack on the Omani city of Sohar. By April 20, more than 1.1 million people in the region had returned to India. The crisis also revealed that while this community represents a significant economic asset, it simultaneously constrains India’s diplomatic room for maneuver, as it is forced to consider the preferences of Gulf host nations.

Remittances are another vital facet of this equation. According to the latest RBI research, GCC countries accounted for approximately 38% of total incoming remittances during the 2023/2024 fiscal year. This share would translate to more than $50 billion if applied to the record $135.5 billion in total remittances recorded in the subsequent fiscal year. In the event of a prolonged war, this could emerge as another point of vulnerability, as the inflow of funds slows to a trickle. This was not the case during the early months of the war: net private remittances leaped to $16 billion in April, up from $9.4 billion the previous April. Yet this buffer has inherent limitations. It likely includes early remittances prompted by anxiety and the weakening of the rupee, and would be unlikely to persist were the economic slowdown in the Gulf to deepen and the demand for labor to decline. In short, the risk has not vanished, it has merely been deferred.

Another oft-overlooked aspect of this debate is that India does not merely buy from the Gulf but also sells to it. The region absorbs some 15.4% of India’s commodity exports. Consequently, a protracted war would threaten not only India’s energy imports but also a vital export market. Should growth in the Gulf falter, or shipping and insurance costs rise, Indian firms that sell food, machinery, and pharmaceuticals would face an immediate shock. In the early weeks of the war, over 400,000 tons of Basmati rice, 70-75% of which is typically destined for markets in West Asia, was stranded in Indian ports. This underscores the significance of free trade negotiations with the GCC, which were officially launched in February 2026. These talks stalled in June due to the war, although officials did meet in August to discuss further steps.

The fourth layer of India’s exposure to the Gulf concerns investment. By September 2025, cumulative GCC investment in India had exceeded $31 billion. Yet this headline figure alone does not fully capture the strategic significance of this investment. Gulf sovereign wealth funds possess precisely what India will need in the years ahead: patient capital for deployment in infrastructure, energy, technology, and logistics. The UAE alone accounts for approximately $25 billion of this. This marks a qualitative shift underway in the nature of India-Gulf ties: whereas for decades India had viewed the Gulf primarily as a source of energy and employment opportunities, it has now also become a source of the capital needed to fuel India’s own rise.

A Confluence of Dependencies

This leads to perhaps the most significant conclusion to be drawn from the data above. If India’s reliance on the Gulf were limited to oil alone, the solution would be a relatively straightforward matter of diversifying its suppliers, which is largely what India actually did. If the dependence were confined to labor, it would be a matter of migration and employment policy. If the Gulf were merely an export market, the task would be to seek out alternative markets. However, India is linked to the region through five channels that operate concurrently. This is the difference between sectoral dependence and strategic exposure. When disparate points of strength converge within the same calculus and at the same geopolitical moment, they transform into a source of compounded vulnerability.

Therefore, the war should be viewed as a stress test for the Indian economy, rather than just another crisis in the Middle East. Before the conflict, policymakers faced a narrow question: what would happen to India were oil prices to rise? Yet more than six months in, many other hypothetical scenarios have become realities, from the disruption of shipping in the Strait of Hormuz to damage to energy infrastructure and a curtailing of gas supplies. India has navigated this phase with high yet manageable costs, largely because the shocks did not fully overlap. Remittances remained stable, Gulf labor markets did not collapse, and alternative supplies from Russia proved to be viable. However, September brought signs of a more dangerous test: the convergence of multiple shocks. The conduit for Saudi exports destined for Asia, including India, was squeezed by both the closure of the pipeline to Yanbu and the Houthi takeover of the gateway to the Red Sea. The crisis thus shifted from the realm of energy security to more fundamental questions over India’s national economic security.

This leads us to a deeper, political contradiction. For years, India successfully cultivated strong relations with nearly all sides: the six GCC states, as well as Iran, Israel, and the U.S. Yet the war exposed the limits of such flexibility when interests suddenly collide. The safety of its expatriate community necessitated alignment with the Gulf states under attack; its energy security required an open channel to Iran to ensure the safe passage of vessels; and a growing partnership with the U.S. and Israel further narrowed the scope for neutrality. Prime Minister Narendra Modi had visited Israel just days before the war erupted. Later, India co-sponsored the UN Security Council Resolution 2817, which condemned Iranian attacks on neighboring states but made no mention of the strikes that ignited the conflict. In April, the Indian Foreign Ministry summoned Iran’s ambassador after the Islamic Revolutionary Guard Corps (IRGC) opened fire on two Indian tankers near the strait.

The irony is stark: India derives immense benefit from stability in the Gulf, yet its contribution to the security architecture that protects these interests has hitherto been far smaller than its reliance upon it. Even when India has acted, it has done so unilaterally, rather than as part of a collective effort. In late March, the Indian Navy launched Operation “Urja Suraksha” (Energy Security) to escort and guide India-bound tankers. However, the passage of these vessels relied on New Delhi obtaining permission from Tehran, a bilateral arrangement that protects Indian ships without contributing to the restoration of freedom of navigation for all.

This approach is driven not only by diplomatic calculations, but also by structural constraints. The Indian Navy is obliged to distribute its capabilities across several fronts: countering China’s maritime expansion in the Indian Ocean, managing the frontier with Pakistan, and safeguarding western shipping lanes. India lacks permanent bases in the Gulf and instead relies on logistical access arrangements, most notably access Oman has granted it to the port of Duqm since 2018. Furthermore, New Delhi has established a tradition of operating beyond American-led alliances; during the 2023–2024 Red Sea crisis, it declined a U.S. invitation to join “Operation Prosperity Guardian,” opting instead to deploy at least a dozen warships to waters west of the Red Sea, rather than within it. This suggests that while expanding India’s maritime presence is feasible, sustaining it at such a distance from home is logistically costly, and inevitably influenced by the rollback of the American security umbrella, as well as by the influence of regional intermediaries such as Muscat and Islamabad, who control channels to which New Delhi lacks direct access.

This is not to suggest that India could replace the U.S. or deploy forces to secure the region. Yet a power that aspires to become the world’s third-largest economy cannot remain so heavily dependent on a vital strategic region while remaining a passive “recipient” of stability. New Delhi also needs to transition from successful bilateral relations with Gulf states toward an integrated regional strategy; a missile that targets a tanker in the Strait of Hormuz does not distinguish between Qatari, Emirati, Saudi, or Kuwaiti oil. However, such a strategy cannot assume that the Gulf is monolithic. It must instead be multi-layered, comprising an inclusive economic framework for the GCC via a free trade agreement, alongside flexible bilateral arrangements over energy and security that account for the distinct calculations of each capital, all based on the premise that the stability of the Gulf is integral to the stability of the Indian Ocean too.

Pakistan and the Mecca Defense Agreement

Yet the most significant development so far in fall 2026 concerns the security situation. On August 7, Saudi Arabia, Türkiye, and Pakistan signed the “Mecca Joint Defense Agreement.” According to public statements, the deal stipulates that an attack on any of the signatories will be considered an attack on all three. The alliance’s General Secretariat is to be based in Riyadh, with a Pakistani official serving as its Secretary-General in its initial stages. As Yemen’s Houthis stepped up their attacks against the Kingdom in September, Pakistan’s Defense Minister hinted that the agreement could be invoked should the war in Yemen spill over into Saudi territory. Subsequently, Pakistan’s Ministry of Foreign Affairs announced that the bilateral defense agreement with Riyadh had become “operational,” confirming that Pakistani forces had been deployed to the Kingdom.

With this deal, Pakistan has reclaimed its traditional role as a security bulwark for the Gulf—albeit within a broader framework than before. It has hosted direct talks between Washington and Tehran and simultaneously provided military backing to Riyadh. Meanwhile, India’s role in the mediation process has remained marginal. Furthermore, Pakistan is a founding member of the Multinational Maritime Defense Coalition (MMDC), unveiled by Saudi Arabia on July 30, and is tasked with securing Bab al-Mandab, the Red Sea, and the Gulf of Aden, which includes Pakistan and Bangladesh, but excludes India. Conversely, Washington has refrained from direct military intervention against the Houthis, despite repeated requests from Riyadh, limiting U.S. involvement to intelligence support. Thus, even as a potential regional alternative to the American security umbrella is being tested, India, as a major Asian power, remains conspicuously absent from the security sphere.

This suggests that the rivalry between India and Pakistan is no longer confined to Kashmir and the subcontinent but has begun to extend into the Gulf and the Red Sea. The sensitivity of this expansion is heightened by the ambiguous scope of the security guarantees under the Mecca defense agreement, which New Delhi has said it is monitoring closely. Specifically, it is unclear whether these guarantees extend to Kashmir. India’s primary concern, however, lies in the potential scale of Turkish military supplies and Saudi financial backing that could be made available to Islamabad in any future crisis. Nevertheless, interpreting this shift as the displacement of India from the Gulf would exaggerate its impact; the agreement serves as a hedging mechanism rather than a formal bloc. Notably, the UAE, New Delhi’s closest Gulf partner, has remained outside both the agreement and the maritime coalition. That said, India’s political leverage in Riyadh, and perhaps in Doha, is narrowing, while the gap continues to widen between its economic footprint and security role in the region.

The predicament is further compounded by another Asian rivalry. China, India’s primary rival, is also the Gulf states’ leading commercial partner, with trade reaching $300 billion in 2025, more than 1.5 times that of India. It is also the largest buyer of Gulf oil. At the start of the current conflict, China had crude reserves estimated at 1.4 billion barrels, which allowed it to reduce imports and absorb shocks. By contrast, India’s strategic reserve covered only a few days. Furthermore, Beijing maintains a military base in Djibouti, on the opposite shore of the Bab al-Mandab Strait, while the Pakistani military relies heavily on Chinese-supplied weaponry. In short, India faces a Gulf region where its Chinese rival is advancing economically, and where its Pakistani rival is expanding its security footprint. This situation constrains India’s ability to translate its commercial weight into strategic influence.

These shifts may place New Delhi under growing expectations from Gulf states to provide tangible security contributions such as securing maritime corridors, protecting oil tankers, and sharing naval intelligence, in order to restrain the expanding presence of Pakistan and China in the maritime domain. India is likely to respond by expanding its independent naval presence in the Arabian Sea and the Gulf of Aden, while accelerating logistics and port connectivity projects, much as it did in 2024. However, structural limitations mean that this approach alone is insufficient to safeguard India’s position as one of the Gulf’s primary Asian partners, unless it is accompanied by frameworks of cooperation that provide regional legitimacy and long-term sustainability.

This equation is not one-sided. Gulf states also need to re-evaluate India’s position within their Asian strategy. India is not merely a major energy importer or a destination for labor remittances. It is a rising economic, demographic, and technological power, and represents a market of more than 1.4 billion people. The war has tangibly demonstrated this mutual need. When the first Qatari gas tankers headed toward the Strait following its reopening in April, they included one chartered by the Indian company Petronet; most were headed for India and Pakistan. The Emirati firm ADNOC rents a portion of India’s strategic petroleum reserve capacity—a scalable model that effectively turns Indian territory into a storage hinterland for Gulf oil, situated well away from Hormuz and Bab al-Mandab.

Finally, there is the human dimension: a community of 10 million Indians that has grown over decades, rendering the bond between India and the Gulf qualitatively different from any partnership based solely on temporary contracts.

The Road Ahead

The interplay of these factors points to three possible trajectories for India’s engagement with the Gulf over the next six to 12 months.

The first scenario would see an interim arrangement to reopen the Strait of Hormuz, whether through the temporary shipping corridor agreed upon by Iran and Oman, or by reviving the U.S.-Iran MoU signed in June, while containing the front in Yemen and bringing the Saudi pipeline back into operation. In this scenario, oil prices could gradually decline, India would regain access to a portion of its Gulf energy supplies, and negotiations over a free trade agreement would resume.

The second scenario, which appears the most likely in the near term, would involve a persistent “gray zone” across both straits: limited passage through the Strait of Hormuz, with military escorts, and the selective opening of the Bab al-Mandab Strait with attacks only on Saudi-linked vessels, while oil prices remain high and volatile. Under this trajectory, India would continue to source alternative supplies, at higher costs and with longer shipping times. What was once an exception would become the norm: escalating fertilizer subsidies and persistent pressure on public finances and the rupee. The worst aspect of this scenario is that rather than triggering a sudden, dramatic shock, it would set in motion a slow, grinding process of attrition, making it harder to muster the necessary political will to confront it.

The third scenario is the least likely, but would be the most consequential. This would see Pakistan move from merely brandishing the prospect of invoking the Mecca Pact to engaging in direct military action against the Houthis, or perhaps entering a broader confrontation with Iran. This would transform the two straits into fronts for an open regional war. In such an event, India’s oil and gas imports would suffer a double blow, and millions of Indian expatriate workers could face displacement or job losses, slashing remittances, all while Pakistan’s military and political footprint in the Gulf expands significantly. This scenario, in which all five channels of influence converge with the current geopolitical impasse, would represent a nightmare for New Delhi.

Conclusion

Ultimately, the dynamics described above point to a conclusion that is difficult to ignore: the Gulf is no longer merely a refueling station for India’s rise but an integral part of the engine driving that ascent. The war has demonstrated that India’s exposure to the region is far deeper than oil import data alone might suggest. The Indian economy possesses certain buffers, but these are temporary and contingent upon decisions made in Washington, Tehran, and Moscow, rather than in New Delhi. By the autumn of 2026, it had become clear that this vulnerability was no longer merely economic but coincided with Pakistan’s emergence as a security partner for the Gulf and the growth of China’s economic footprint in the region.

This situation compels New Delhi to shift from crisis management toward building resilience through practical, incremental steps. First, it must approach diversification not just in terms of suppliers, but in terms of transit routes, prioritizing Omani ports located beyond the two key straits, accelerating the expansion of its strategic petroleum reserve, and exploring the creation of a strategic gas reserve. Second, it should combine an expanded, independent maritime presence with cooperative frameworks for sharing maritime intelligence and early-warning data with Gulf states, including exploring coordination with the Riyadh-led maritime coalition, while avoiding formal alliances directed against any specific party.

Third, it should seek quiet understandings with Riyadh to ensure that the scope of the Mecca Pact remains confined to Gulf security, avoiding the issue of Kashmir, while simultaneously deepening its defense partnerships with Abu Dhabi and Muscat. Fourth, it must formalize the management of its expatriate community through permanent crisis protocols with host nations, and reclaim a diplomatic role in mediation efforts, a space which by its absence, it had effectively ceded to Islamabad.

Conversely, the Gulf states have a clear interest in engaging with India as a strategic partner, rather than merely an export market, by finalizing a free trade agreement and expanding investments in India’s energy infrastructure and storage facilities on Indian territory, in order to insulate Gulf exports from the vulnerabilities associated with maritime chokepoints. Furthermore, involving New Delhi in emerging maritime security arrangements would ensure that these new regional frameworks are not perceived by India as alignments against itself.

Consequently, the strategic question facing New Delhi is no longer that of how to secure alternative oil supplies should the Strait of Hormuz be closed. This is a challenge it has already addressed albeit at a significant cost. The real question is this: how can India safeguard its economic rise, given that one of its most vital external spheres is now inextricably linked to a region at the heart of the world’s most volatile conflict zones? While Hormuz lies geographically between Oman and Iran, the reality is that in economic terms, for India, the Strait is very close to home.