Energy, airlines and now more than $50 billion in remittances to India are at risk as Middle East conflict deepens

This report is from this week’s ‘Inside India’ newsletter, bringing you timely and insightful market news and commentary on the emerging powerhouse. Subscribe here.

India seems unable to escape the consequences of the escalating conflict in the Middle East. A significant portion of the country’s energy imports are at risk of disruption and its aviation sector faces higher costs due to airspace restrictions.

But there is another multibillion-dollar concern the country will have to deal with: remittances.

India is the largest recipient of remittances worldwide and they represent almost 3.5% of GDP, a figure higher than the proportion of exports to the United States, which represent 2% of the economy. More than 9 million Indians reside in the Middle East and the money they send home plays an important role in shoring up India’s finances and helping reduce its current account deficit.

The Indian diaspora in the Gulf countries contributes nearly 38% of India’s total inward remittances, according to a Citi report. Based on inflows of $135.4 billion in fiscal year 2025, the Gulf countries’ share amounts to $51.4 billion.

To put it in perspective: India’s total trade surplus with the United States was $58.2 billion in 2025.

According to experts, Indian workers in the Gulf countries are mainly employed in the oilfield services, construction, hospitality and retail sectors, industries particularly vulnerable to disruptions caused by the Iranian attacks.

“A sharp drop (in remittance inflows) – particularly if combined with higher oil prices due to the conflict – would worsen India’s external position and could put some pressure on the rupee,” said Alexandra Hermann, senior economist at Oxford Economics.

In recent years, India’s remittances have exceeded its foreign direct investment flows, with those from the United Arab Emirates alone contributing almost a fifth of the flows, second only to the United States (27.7%).

The good news, experts tell me, is that only a prolonged conflict in the Middle East will affect India’s remittance flows enough to impact the economy. The bad news is that no one is sure if this conflict will be short.

Hermann told me that a “moderate and temporary disruption” is manageable but that a “bigger risk” would be if the conflict leads to a slowdown in construction and services activity in the Gulf, affecting Indian migrant workers.

The war between the United States and Iran is in its sixth day and is spreading to the entire region; The US embassies in Riyadh and Kuwait are also under attack. US Secretary of State Marco Rubio has promised that the US and Israeli offensive against Iran will increase in scope and intensity.

Deepa Kumar, head of Asia-Pacific country risk and co-head of the India research chapter at S&P, told me that if the conflict lasts more than six months, it will have a material impact on the Indian economy.

In the event of a contained conflict “there could be some initial shocks to remittances” from the Middle East, but that will be limited to spot worker contracts, Kumar said. In the coming days his team will begin assessing how a prolonged conflict could affect the economy.

The chances of hostilities lasting longer have increased as both sides intensify their attacks. US President Donald Trump said Monday that the military operation in Iran could last “much longer” than the estimated four or five weeks.

Citi in its note on Monday said that if the conflict lasts for long, remittances would be “negatively impacted” as earning opportunities of the Indian diaspora would be affected. In the short term, however, “there could be a perverse positive impact if ‘risk aversion’ leads to more repatriations,” the note said.

Will the country suffer collateral damage on multiple fronts from a war it has little to do with, or will the conflict end before the country experiences serious repercussions? We’ll only know for sure in the coming months – watch this space.

I need to know

Oil supply in New Delhi is worrying. India imports almost 85% of its crude oil and, as global oil prices rise due to the Middle East conflict, the country’s already substantial energy import bill is expected to soar. Indian airlines are also experiencing increased costs due to restriction in the use of airspace over the Gulf countries.

India and Canada promise to deepen ties. During Prime Minister Mark Carney’s visit to New Delhi earlier this week, the two countries put aside differences, pledged to foster closer ties and deepen trade.

India’s economy grew at a faster pace. The economy grew at a faster-than-expected pace of 7.8% during the quarter ended in December. The latest impression comes after the government revised the framework for calculating economic output to improve accuracy.

going up

March 4-7: Finnish President Alexander Stubb visits India.

March 9: Rajputana Stainless IPO opens