The ongoing conflict in the Middle East, involving Iran, Israel, and the United States, is affecting India's automotive sector through disruptions to energy supplies, raw materials, and logistics.

Despite claims by the United States that a resolution is imminent, Iran maintains a belligerent stance, which is expected to impact India's automotive supply chains in the coming weeks and months.

Impact on fuel and automotive costs

Crude oil prices, already exceeding US$ 100 per barrel, could rise above US$ 150 in the near term due to geopolitical instability. Oil continues to behave as a politically sensitive commodity, prone to sharp fluctuations during conflicts or political unrest. Initial price movements were observed when crude oil rose nearly 50% from just over US$ 70 per barrel following the onset of hostilities.

Higher crude prices directly influence fuel costs for the automotive sector. Diesel consumption, concentrated among SUVs and commercial vehicles, accounts for approximately 15% of national fuel use, while petrol demand remains lower. Political considerations, such as upcoming assembly elections in Tamil Nadu, West Bengal, Kerala, and Assam, have led officials to signal that fuel prices are unlikely to increase until after polling. Meanwhile, compressed natural gas (CNG) supplies could face shortages due to disruptions in LNG shipments from Qatar, particularly affecting Delhi, Maharashtra, and Gujarat.

Industrial gas shortages and component manufacturing

Rising tensions have affected the automotive component industry, especially regarding the supply of industrial gases such as LPG, PNG, and propane. Vinnie Mehta, Director General of the Automotive Component Manufacturers Association of India (ACMA), noted that manufacturers engaged in coatings and surface treatments rely on these gases for production.

India imports nearly 60% of its LPG from West Asia, with approximately 90% transiting the Strait of Hormuz. Disruptions have delayed chemicals, synthetic rubber, aluminium scrap, and petrochemical-based inputs such as polypropylene, affecting both component manufacturers and original equipment manufacturers (OEMs).

Industry bodies, including the Society of Indian Automobile Manufacturers (SIAM) and ACMA, have requested that the Ministry of Petroleum and Natural Gas restore industrial gas allocations and provide clarity on supply availability. A government-appointed three-member committee is reviewing these requests.

Supply chain, labour and vehicle demand implications

The crisis could affect vehicle production and demand. Restaurant closures due to cooking gas shortages may lead to job losses among gig economy workers, particularly delivery personnel using two-wheelers, potentially reducing demand for new vehicles. Rising diesel prices would increase freight costs, affecting essential commodity prices and household purchasing power.

Supply chain disruptions also extend to semiconductor production, with helium shortages potentially affecting chip availability. Inflationary pressures, driven by higher fuel prices and hoarding of LPG cylinders, may suppress consumer demand for vehicles, both conventional and electric, as households prioritise essential expenditures.

Logistics, Exports and international trade

Maritime disruptions, including blockades near the Strait of Hormuz, have increased freight costs and transit times, delaying shipments to the Middle East and North Africa. The Gulf region represents a key market for India's automotive exports, accounting for approximately 25% of the country's US$ 8.8 billion vehicle exports in 2025, primarily to Saudi Arabia, the UAE, and other Gulf nations. Rising logistical costs could affect domestic production and the international competitiveness of Indian manufacturers.

Outlook for the automotive sector

India's automotive sector, which contributes around 2.3% of GDP and directly employs over 1.5 million people, faces challenges from energy shortages, rising fuel costs, and potential raw material constraints. The impact is already evident in the suspension of shipments and inflationary pressures. Should the conflict continue, disruptions could extend across manufacturing, logistics, exports, and employment, affecting both the industry and related supply chains.

Unlike localized conflicts such as the Russia-Ukraine war, the Middle East crisis could influence global energy markets and industrial supply chains on a larger scale, with implications for India's automotive sector, production costs, and vehicle demand.