How the Hormuz Strait Crisis is Squeezing India’s SMEs

Disruptions in Key Indian Trade Hubs

The recent blockage of the vital shipping route has thrown India’s regional economies into turmoil. Among the hardest-hit areas are Kerala, a major spice exporter, and Morbi, a hub for ceramics production. These regions are now experiencing ripple effects from the crisis, which began with Iran’s actions and was later intensified by the US naval blockade.

Economic Vulnerability Exposed

India’s reliance on the Strait of Hormuz for trade and energy flows has been laid bare. The corridor accounts for 15% of the nation’s exports and 20.1% of its imports between April and December 2025, as per Commerce Ministry figures. With energy imports, export revenues, and remittances all tied to this route, any disruption carries wide-reaching consequences.

“When the route is blocked, the effects spread rapidly—from inflated fuel prices and inflation to reduced export income and financial strain on families,” said Lekha Chakraborty, a senior economist at the National Institute of Public Finance and Policy.

Exporter Struggles Intensify

Small and medium-sized enterprises (SMEs) in southern Kerala and Gujarat’s Kandla are particularly vulnerable. These businesses operate on narrow profit margins, typically 5-8%, making them unable to handle sudden increases in shipping, insurance, and logistical delays. Their dependence on informal credit also exacerbates the problem, as delayed payments cause liquidity issues.

“Fixed-price agreements with Gulf buyers leave little flexibility, and prolonged delays can trigger immediate cash flow problems, cancellations, and layoffs,” Chakraborty added.

Industry-Specific Challenges

Spice exporters in Kerala report visible disruptions. The Middle East, especially the UAE, plays a critical role as both a buyer and a distribution center for Indian spices. Gulshan John, managing director of Nedspice, noted that the crisis threatens demand, order timelines, and payment reliability. “This means business continues, but with much less certainty,” he explained.

Rice exporters are also facing shipment challenges, while sectors reliant on imports like fertilizers and chemicals brace for cost increases and supply shortages. Manufacturing hubs for textiles, ceramics, and construction materials are similarly affected, with some firms losing margins due to soaring freight rates.

Escalating Costs and Uncertainty

Freight costs have skyrocketed, with rates climbing from $300 to $8,000 per container. This surge threatens the profitability of clusters like Morbi’s ceramics and Surat’s textiles. Delays in export receivables compound the issue, creating liquidity crunches as cash flow stalls.

Ships are now taking longer, alternative routes such as detours around the Cape of Good Hope, leading to extended delivery times and higher expenses. For businesses dealing with perishable goods or tight schedules, these delays translate directly into lost opportunities or broken contracts.