Geopolitical crises early arrive with neat labels. They unsettle markets, test diplomacy and expose economic vulnerabilities. But sometimes they also create openings that prepared nations can convert into long-term advantage. The evolving understanding between the United States and Iran, the reopening of the Strait of Hormuz, the improving but still fluid India-US trade framework and the possibility of Iran’s reconstruction together constitute one such moment for India.
The issue is not only whether crude prices soften for a few weeks. The larger question is whether India can use this transition to strengthen energy security, trade competitiveness and its strategic economic presence across West Asia and Central Asia. India enters this moment with confidence, but not immunity. It is still among the fastest growing major economies, with GDP growth projected around 6.3-6.5 per cent, foreign exchange reserves above US$700 billion and consumer inflation broadly within the Reserve Bank of India’s tolerance band.
Yet 85 per cent of India’s crude oil requirement is imported, and almost two-thirds of these imports transit through the Strait of Hormuz. Every sustained US$10 per barrel increase in crude prices can widen the current account deficit by 0.3 percentage points of GDP, add pressure on inflation, and weigh on the rupee. This is why the West Asia reset must be approached with preparedness rather than complacency. The first principle is to treat lower oil prices as a strategic window, not merely as temporary relief. India’s strategic petroleum reserve currently provides only a limited cushion compared to the country’s import dependence.
Periods of softer crude prices should therefore be used to accelerate filling of strategic reserves, expand LNG storage, and diversify sourcing across Russia, the Gulf, the United States, Africa, and Latin America. Each dollar saved on the oil import bill strengthens macroeconomic stability when deployed to build long-term resilience rather than short-term consumption. Iran’s reconstruction, whenever it gathers pace, could involve investments running into tens of billions of dollars across transport, energy, housing, healthcare, and digital infrastructure over the coming decade.
Indian firms have proven capabilities in pharmaceuticals, engineering, IT services, EPC (engineering, procurement, construction) contracting, and affordable infrastructure. However, competition will be intense from China, Turkiye, Gulf economies, Europe, and South Korea. India’s comparative advantage in cost-effective execution and trusted partnerships must therefore be backed by prompt financing and institutional support. This is where Chabahar becomes central.
The port is not merely a maritime asset but India’s strategic gateway to Afghanistan, Central Asia, and Eurasia through the International North South Transport Corridor. Studies estimate that the INSTC can reduce freight time between India and Europe by around 40 per cent and logistics costs by nearly 30 per cent compared with traditional routes. Securing greater banking, insurance and shipping clarity around Chabahar would significantly strengthen India’s regional trade architecture. But an external opening can be captured only when domestic competitiveness is ready.
India’s logistics costs, estimated at around 13-14 per cent of GDP, remain well above many global competitors. Reducing these costs through PM Gati Shakti, multimodal connectivity and digital trade facilitation would substantially improve export competitiveness. MSMEs contribute nearly 45 per cent of India’s merchandise exports yet often face working-capital constraints. Faster GST refunds, expanded credit guarantees, stronger TReDS adoption and timely payments can convert geopolitical opportunities into jobs and exports. Simultaneously, India should accelerate the India UK FTA, conclude an ambitious agreement with the EU, operationalise IMEC and deepen engagement with the Global South.
India should also view this moment through the lens of supply chain diversification. Global manufacturers are increasingly adopting a China-plus-one strategy, and India’s improving infrastructure, production linked incentive ecosystem and expanding network of trade agreements can make it a preferred manufacturing and export hub. Lower energy costs temporarily improve cost competitiveness, but durable gains will come only if India uses this period to attract export-oriented investment in sectors such as electronics, chemicals, green manufacturing and engineering goods.
Equally important is financial preparedness. A calibrated approach to deploying part of the savings from a lower oil import bill towards fiscal consolidation, capital expenditure and strategic reserves would reinforce macroeconomic stability. Such signalling strengthens investor confidence, supports sovereign credibility and creates greater policy space when the next external shock inevitably arrives. Iran’s reconstruction can also become a test case for a new model of Indian economic statecraft. A coordinated platform bringing together EXIM Bank, ECGC, port operators, EPC firms, pharmaceutical companies and digital infrastructure providers would enable Indian enterprises to compete at scale while managing geopolitical and financial risks.
The larger lesson goes beyond Iran. India’s rise will depend not only on domestic reforms, but also on its ability to convert geopolitical transitions into economic gains. For too long, countries like India have treated external shocks mainly as risks to be managed. That remains necessary. But the next stage of economic strategy must go further. It must identify openings early, prepare institutions quickly, give confidence to firms and move before competitors lock in the advantage. The present West Asia moment is therefore not a story of cheaper oil alone.
It is a reminder that macroeconomic resilience, trade policy, energy security, logistics, MSME competitiveness and diplomacy must now operate as one integrated strategy. Nations become stronger not simply by surviving crises, but by recognising the opportunity hidden inside them. India has the credibility, capacity and strategic location to do so. What it now needs is speed, coordination and the confidence to turn a fragile geopolitical opening into a durable economic advantage.
The writer is Part Time Member, Economic Advisory Council to the Prime Minister.