India Issues Leave Iran Immediately Advisory to Citizens
Why Now? The Escalating Flashpoint
The conflict between Iran and Israel has escalated recently with the bombing of Iranian military positions by Israel that were reciprocal to an Iran received missile from Israel last week. Iran has declared DEFCON 1 and escalated readiness to engage on all fronts against Israel.
Over 5000 students study in Iran while 2000 of these are nurses are currently working on multiple projects around the Dubai/Bandar Abbas area. Approximately 3000 engineers are currently supporting the South Pars gas fields on behalf of Oil and Natural Gas Corporation (ONGC), and Larsen and Toubro (L&T). The Indian Ministry of External Affairs (MEA) continues to encourage each Indian citizen to leave the area via routes through Armenia and Jordan while they are still available. Based on analyses of Armed Conflict Location Event Data Project (ACLED) there has been a 40% increase in regional instability due to the Iranian-Israeli conflict taking place in the Persian Gulf since the most recent Israeli strikes.
Immediate Impacts on Indian Businesses
First affected by the disruption caused from the trade war, India and Iran bilateral trade for USD 2.3 billion was going to be for FY25 but will now be delayed because the Chabahar Port was going to be completed for USD 370 million as India's crown jewel in the region and is now on-risk to being delayed. The operations at ONGC, with a USD 7 billion stake in South Pars, have also been put on hold with their expatriate employees returning to India. The construction of private hospitals has come to a halt because nurses working at these hospitals have been unable to have their contracts honored.
Such delays, because of the trade war, have also disrupted shipping channels. Bandar Abbas accounted for 30% of Indian crude shipments, but because of premium increases of 15%, insurance companies will not insure vessels through this route anymore. Mumbai refiners are now looking for petroleum shipments from Saudi Arabia and the United Arab Emirates, therefore increasing their overall landed cost of the petroleum by USD 1.00 to USD 2.00. Indian residents living outside of India and conducting trade with companies in Tehran have had their payments stopped with their letters of credit closed.
Diaspora Distress: Real Stories from Ground Zero
A nurse from Kerala by the name of Priya Sharma reached out from Tehran via WhatsApp stating, “Sirens are sounding every night. Hospitals are being put on standby for mass casualties due to so many families wishing to come home.” All student visas have been cancelled; Airlifting of 500 people from Jammu & Kashmir through Amman began on Saturday. The IBA has reported that 20% of the small businesses have closed up and are now liquidating their inventory at $0.60 on the dollar.
The mental distress is mounting as families based in Kochi and Lucknow are following the flights on Flightradar24 on a continuous basis. The community has raised ₹15 crores to get them back, and prayers are being offered by temples from Bandra to Bhubaneswar.
Business Continuity
Diversification opportunities in Iran - Basmati rice's 10% share, tea's 5%. Focus on UAE and Indonesia channels - presently absorbing 25% overflow. Pharmaceutical generics into Tehran could be driven by ₹800 crore market. Gaps in Egypt and Jordan present an opportunity.
Chabahar workaround: Utilise 10-year contract for contingency via Mundra-Gwadar shuttles. Hedge fuel costs through Adani's Haifa connections and Nayara's Russian crude. Relocation of non-critical workers to Dubai hubs is viable - L&T did this in Yemen (2015), retaining continuity at 80% saving.
Refreshing insurance: Political risk insurance policy excludes "named aggressors"; cyber insurance riders become more critical as there will be a 300% increase in hacking during times of war/conflict. Conduct tabletop exercises - run simulations of week-long blackout scenarios over the weekend.
Geopolitical Chess
The government of PM Modi finds itself on a delicate balancing act as they pursue their national interests at home while at the same time trying to align India's relationship with Iran to positively impact India's broader geopolitical objectives; while developing relations with Pakistan, Iran provides 11% of the INSTC land-based access to the Chabahar port on the Indian Ocean, therefore reducing Pakistan's role in facilitating overland trade between India and Central Asia (the INSTC); at the same time, the alignment of QUAD with Israel as one of the four member nations ($2B in defense contracts closed) creates political pressure for the Modi government to provide diplomatic support to Israel.
The Modi government also abstained from supporting the U.S. and EU resolution against Iran in the recent UNGA vote, while expressing neutrality; however, India's freezing of rupee-based trade payments with Iran (causing delays in exports from Iran) was not in support of India's national interests with respect to Iran, which were impediments to achieving the Modi government's objective of increasing INSTC shipments from India to Central Asia.
Longer term, India should continue to de-risk its exposure to Iran in less than 5% of their respective portfolios. Many of India's companies have successfully pivoted their businesses to Africa (e.g., Tata's withdrawal from Sudan in 2023 increased profits based on East Africa operations by an additional 15%), while simultaneously building new relationships with their cousins and historical trading partners in the Horn of Africa through either mergers/assume control of the existing companies, or to create new companies—this should be the basis for de-risking further.
What Leadership Must Communicate Now
"We are checking hourly to encode repatriation flights to your teams" and on board there are scenario models of possible 7-12% EBITDA risk with timelines for mitigation. Empathy is essential - we will hold town halls with families and have mental health lines available 24/7.
Testing resiliency is our task with this advisory. The last decade showed 30% of India's global footprint increase; astute operators turn shock to diversified strength. You need to check MEA hourly and react quickly to gain advantage through preparation.
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