How the war in Iran is impacting small businesses in India
From reduction in energy resources and availability of raw materials to logistics, the impact of the hostilities in the Gulf has trickled down to the micro, small and medium sectors
Anil Bhardwaj, secretary general of the Federation of Indian Micro and Small & Medium Enterprises (FISME), explains that the impact on industry is twofold. It is being felt acutely by sectors that depend on LPG for manufacturing, such as ceramics and foundries, and by sectors like plastics, chemicals and synthetic apparel that rely on crude-linked raw materials. In addition, firms that export to or import from the Middle East are also being affected due to rising freight and insurance costs.
Gas shortage: The Gulf situation is impacting sectors that rely on gas in their manufacturing processes, such as ceramics, fertilisers, and the foundry and casting industries. Production disruptions have already begun among micro and small units and are expected to gradually extend to larger players.
Coimbatore, a major hub for pump and motor manufacturing with over 2.5 lakh MSME units supplying more than 40 per cent of India’s requirements for these products, is seeing revenue impacts of up to 30 percent due to the non-availability of LPG since March 9, claims M. Karthikeyan, president, Coimbatore District Small Industries Association.
“Units may begin shutting down as LPG stocks get depleted, since most firms maintain inventory for only about 15 days. This could result in nearly four lakh people from a labour force of 12 lakh losing jobs in Coimbatore alone,” Karthikeyan says.
It is important to note that an earlier rise in electricity prices, from Rs 35 to Rs 150 per kilowatt for industry in 2022 by the Tamil Nadu government, had forced nearly 50% of units to shift from electric to gas-fired furnaces. Karthikeyan says the industry has urged the state government to reduce electricity tariffs and ensure adequate power supply so units with electric ovens can continue operations.
He explains that industry functions as an ecosystem, and even a small disruption can have cascading effects. For instance, powder coating accounts for just 5–10% of value addition but is heavily dependent on gas. Its disruption can impact upstream
industries, such as sheet metal production, which may halt if products cannot be sold due to the absence of powder coating.
The gas shortage is also affecting the apparel cluster, particularly in the Delhi-NCR region, during the peak export season when summer shipments are scheduled for overseas markets. This is due to disruptions in PNG supply, which is used in boilers to generate steam for ironing and washing. Exporters also lack dual-fuel options because the pollution authority, the Commission for Air Quality Management, had mandated a shift to cleaner fuels and banned diesel use.
Crude-linked sectors: Crude-linked sectors are also under pressure because crude-based derivatives are primary raw inputs for products across industries including plastics, chemicals, synthetic fibres (nylon, polyester), rubber, paints, solvents, and packaging materials.
The plastic processing industry in India is heavily dependent on imports for polymer raw materials such as polyethylene, polypropylene and PVC resin. Of the total annual consumption of 24 million tonnes of these, 8-9 million tonnes are imported, including about three million tonnes from the Gulf region.
With imports from the Gulf disrupted, and the government’s LPG Control Order dated March 8, 2026, directing refineries to divert C3 and C4 hydrocarbon streams (propane, butane, propylene, and butenes) towards LPG production, the petrochemicals and plastics industries have been further affected.
As a result, between March 1 and 13, domestic polymer producers raised prices by nearly 50%. This has hit around 90,000 MSME plastic processors engaged in products such as packaging materials, pipes and container bottles for shampoo and oil, many of whom are unable to pass on the increased costs, says Arvind Goenka, regional chairman (North), FIEO, and former chairman, Plastics Export Promotion Council of India. “This has forced several micro units, which typically do not hold inventory, to shut down, while slightly larger players are fulfilling orders at existing prices, albeit at a loss,” Goenka asserts.
India’s plastic exports, valued at $13 billion, include 6-7% to the Middle East that has now been disrupted due to container shortages and rising freight costs. “All exports to the Middle East have stopped. Many MSMEs with ready shipments are now stuck with unsent goods,” says Goenka. “This situation is different even compared to the Covid period, which was a Black Swan event but unfolded gradually. In this case, everything has happened suddenly within just 10 days.”
Similarly, Ajay Saboo, managing director at specialty chemicals and formulations firm Kajay Remedies, says the non-availability of crude-based feedstock such as toluene, benzene, and xylene has led to shortages and price increases of 40-80%. “Several raw materials were imported from Saudi Arabia and China, but all of that has been impacted,” he says.
Saboo adds that while the government influences prices of diesel and petrol, prices of other crude-based derivatives are determined by refineries, and smaller players have little bargaining power against larger suppliers.
Export-import challenges: West Asia is one of India’s largest trading partners and also serves as a hub for supplying to Gulf and Western markets. However, due to ongoing conflict, logistics have been severely disrupted and shipments are being rerouted through alternative ports.
Dubai’s Jebel Ali Port is a critical corridor linking Asia and the Middle East to Western markets such as the EU and the US. However, due to the closure of the Strait of Hormuz, cargo is being diverted to smaller ports such as Fujairah and Khor Fakkan in the UAE, and then transported by road to final destinations. As a result, not only have export costs increased sharply, transit times have also risen significantly. New Delhi-based exporter Pankaj Bansal, founder and CEO of TMA International, highlights the logistical challenges that have arisen. “Earlier, from Dubai’s Jebel Ali Port, products would reach the market within three to four hours; now it is taking three to four days, resulting in consumers getting more expensive and less fresh products,” he says. “Due to supply chain disruptions, there is a shock in the market. Demand for food products remains high despite higher prices, as food is an essential item. However, we expect demand to gradually soften as disposable incomes decline.”
Bansal adds that if consumer prices cross a certain threshold, demand will weaken, impacting retailers’ incomes and prompting them to reduce procurement. This, in turn, will lead to inventory build-up with distributors and wholesalers, forcing factories to cut production. “This could eventually lead to recessionary conditions, and the longer the war continues, the more severe the situation will become for everyone,” he cautions.
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Anil Bhardwaj, secretary general of the Federation of Indian Micro and Small & Medium Enterprises (FISME), explains that the impact on industry is twofold. It is being felt acutely by sectors that depend on LPG for manufacturing, such as ceramics and foundries, and by sectors like plastics, chemicals and synthetic apparel that rely on crude-linked raw materials. In addition, firms that export to or import from the Middle East are also being affected due to rising freight and insurance costs.
Gas shortage: The Gulf situation is impacting sectors that rely on gas in their manufacturing processes, such as ceramics, fertilisers, and the foundry and casting industries. Production disruptions have already begun among micro and small units and are expected to gradually extend to larger players.
Coimbatore, a major hub for pump and motor manufacturing with over 2.5 lakh MSME units supplying more than 40 per cent of India’s requirements for these products, is seeing revenue impacts of up to 30 percent due to the non-availability of LPG since March 9, claims M. Karthikeyan, president, Coimbatore District Small Industries Association.
“Units may begin shutting down as LPG stocks get depleted, since most firms maintain inventory for only about 15 days. This could result in nearly four lakh people from a labour force of 12 lakh losing jobs in Coimbatore alone,” Karthikeyan says.
It is important to note that an earlier rise in electricity prices, from Rs 35 to Rs 150 per kilowatt for industry in 2022 by the Tamil Nadu government, had forced nearly 50% of units to shift from electric to gas-fired furnaces. Karthikeyan says the industry has urged the state government to reduce electricity tariffs and ensure adequate power supply so units with electric ovens can continue operations.
He explains that industry functions as an ecosystem, and even a small disruption can have cascading effects. For instance, powder coating accounts for just 5–10% of value addition but is heavily dependent on gas. Its disruption can impact upstream
industries, such as sheet metal production, which may halt if products cannot be sold due to the absence of powder coating.
The gas shortage is also affecting the apparel cluster, particularly in the Delhi-NCR region, during the peak export season when summer shipments are scheduled for overseas markets. This is due to disruptions in PNG supply, which is used in boilers to generate steam for ironing and washing. Exporters also lack dual-fuel options because the pollution authority, the Commission for Air Quality Management, had mandated a shift to cleaner fuels and banned diesel use.
Crude-linked sectors: Crude-linked sectors are also under pressure because crude-based derivatives are primary raw inputs for products across industries including plastics, chemicals, synthetic fibres (nylon, polyester), rubber, paints, solvents, and packaging materials.
The plastic processing industry in India is heavily dependent on imports for polymer raw materials such as polyethylene, polypropylene and PVC resin. Of the total annual consumption of 24 million tonnes of these, 8-9 million tonnes are imported, including about three million tonnes from the Gulf region.
With imports from the Gulf disrupted, and the government’s LPG Control Order dated March 8, 2026, directing refineries to divert C3 and C4 hydrocarbon streams (propane, butane, propylene, and butenes) towards LPG production, the petrochemicals and plastics industries have been further affected.
As a result, between March 1 and 13, domestic polymer producers raised prices by nearly 50%. This has hit around 90,000 MSME plastic processors engaged in products such as packaging materials, pipes and container bottles for shampoo and oil, many of whom are unable to pass on the increased costs, says Arvind Goenka, regional chairman (North), FIEO, and former chairman, Plastics Export Promotion Council of India. “This has forced several micro units, which typically do not hold inventory, to shut down, while slightly larger players are fulfilling orders at existing prices, albeit at a loss,” Goenka asserts.
India’s plastic exports, valued at $13 billion, include 6-7% to the Middle East that has now been disrupted due to container shortages and rising freight costs. “All exports to the Middle East have stopped. Many MSMEs with ready shipments are now stuck with unsent goods,” says Goenka. “This situation is different even compared to the Covid period, which was a Black Swan event but unfolded gradually. In this case, everything has happened suddenly within just 10 days.”
Similarly, Ajay Saboo, managing director at specialty chemicals and formulations firm Kajay Remedies, says the non-availability of crude-based feedstock such as toluene, benzene, and xylene has led to shortages and price increases of 40-80%. “Several raw materials were imported from Saudi Arabia and China, but all of that has been impacted,” he says.
Saboo adds that while the government influences prices of diesel and petrol, prices of other crude-based derivatives are determined by refineries, and smaller players have little bargaining power against larger suppliers.
Export-import challenges: West Asia is one of India’s largest trading partners and also serves as a hub for supplying to Gulf and Western markets. However, due to ongoing conflict, logistics have been severely disrupted and shipments are being rerouted through alternative ports.
Dubai’s Jebel Ali Port is a critical corridor linking Asia and the Middle East to Western markets such as the EU and the US. However, due to the closure of the Strait of Hormuz, cargo is being diverted to smaller ports such as Fujairah and Khor Fakkan in the UAE, and then transported by road to final destinations. As a result, not only have export costs increased sharply, transit times have also risen significantly. New Delhi-based exporter Pankaj Bansal, founder and CEO of TMA International, highlights the logistical challenges that have arisen. “Earlier, from Dubai’s Jebel Ali Port, products would reach the market within three to four hours; now it is taking three to four days, resulting in consumers getting more expensive and less fresh products,” he says. “Due to supply chain disruptions, there is a shock in the market. Demand for food products remains high despite higher prices, as food is an essential item. However, we expect demand to gradually soften as disposable incomes decline.”
Bansal adds that if consumer prices cross a certain threshold, demand will weaken, impacting retailers’ incomes and prompting them to reduce procurement. This, in turn, will lead to inventory build-up with distributors and wholesalers, forcing factories to cut production. “This could eventually lead to recessionary conditions, and the longer the war continues, the more severe the situation will become for everyone,” he cautions.
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