Iran Unrest's Limited Impact on India Inc: Crisil Ratings Analysis

According to a recent credit alert from Crisil Ratings, the immediate impact remains muted due to India's limited direct trade exposure to the nation. However, the rating agency warned that a prolonged or escalating conflict could eventually pressure specific sectors, particularly those sensitive to fluctuations in global crude oil prices.

"The ongoing unrest in Iran has not had any significant impact on India Inc's global trade, or the credit profiles of domestic corporates thus far," Crisil Ratings noted.

The agency highlighted that India's direct trade with Iran is "minuscule," representing approximately 0.3 per cent of total exports and less than 0.1 per cent of total imports during the last fiscal year. Most of India's exports to the region are concentrated in basmati rice, while imports largely consist of fruits and nuts.

Despite the low direct exposure, the broader risk lies in Iran's role in the global energy market. As Iran accounts for roughly 4-5 per cent of the world's crude oil supply, any disruption to its production could cause a spike in global prices.

Crisil cautioned that "if tensions persist or escalate, sectors such as oil refining, aviation and crude-linked sectors, such as speciality chemicals, paints, petrochemicals and synthetic textiles may be affected due to a rise in crude oil prices."

The impact on these industries will largely depend on their ability to pass on increased raw material costs to consumers. While Brent crude prices initially spiked past USD 65 per barrel at the start of the unrest, they have since stabilised.

For sectors such as basmati rice, where Iran is the third-largest destination for Indian exporters, demand is expected to remain steady. Crisil stated, "Since basmati rice is a staple in Iran, the impact on demand is likely to be limited."

However, a long-term crisis could introduce logistical and financial hurdles. Exporters might face disrupted supply chains or payment delays from Iranian partners, which could lengthen their working capital cycles. On the import side, products like fruits and nuts, which make up over 60 per cent of what India buys from Iran, are considered non-essential, meaning their demand is "likely to be highly elastic in the event of a disruption."

Crisil Ratings concluded by stating they are "monitoring the developments closely and will assess the impact on credit quality on a case-by-case basis."

- ANI